UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 [X]     
 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 
 For the quarterly period
ended June 30, 2009
  OR
 
 [
]        TRANSITION REPORT UNDER SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from ____________
to_____________
 
 
 Commission
file number 333 - 38558
 
 KODIAK
ENERGY, INC.
 (Exact
name of registrant as specified in its charter)
 
 
 Delaware
                65-0967706(State
      or other jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification No.)
  Suite 405, 505 8th Avenue
S.W. Calgary, AB T2P 1G2
 (Address
of principal executive offices - Zip code)
 
 (403)
262-8044
 (Registrant's
telephone number, including area code)
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90
days.        Yes  X   No
 
 Indicate
by check mark whether the registrant is a large accelerated filer,
accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of “large accelerated filer”, “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
 
 Large
      Accelerated
      Filer                           
           o
                Accelerated
      Filer                    
      xNon-Accelerated
      Filer                                 
       o
                  (Do
      not check if a smaller reporting
      company)
                Smaller
      Reporting Company     o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of The Exchange Act) Yes     No X
 
 APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:
 
 Check
whether the registrant filed all documents and reports required to be filed by
Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a
court.       Yes  X   No
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS
 
 State the
number of shares outstanding of each of the registrant's classes of common
equity, as of the latest practicable date: 110,023,998 common shares, $.001
par value, as at August 5, 2009.
  
  KODIAK
ENERGY, INC.
 INDEX
 
 PART
      I.
                          FINANCIAL
      INFORMATION
                          3ITEM
      1.
                          FINANCIAL
      STATEMENTS
                          3Consolidated
      Balance Sheets
                          3Consolidated
      Statement of Shareholders’ Equity (unaudited)
                          4Consolidated
      Statements of Operations (unaudited)
                          5Consolidated
      Statements of Cash Flows (unaudited)
                          6Notes
      to Consolidated Financial Statements (unaudited)
                          7ITEM 2.
                          MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
                          36ITEM
      3.
                          QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                          47ITEM 4.
                          CONTROLS
      AND PROCEDURES
                          48PART
      II.
                          OTHER
      INFORMATION
                          50ITEM
      1.
                          LEGAL
      PROCEEDINGS
                          50ITEM 1A.
                          RISK
      FACTORS
                          50ITEM
      2.
                          UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                          55ITEM 3.
                          DEFAULTS
      UPON SENIOR SECURITIES
                          55ITEM
      4.
                          SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                          55ITEM
      5.
                          OTHER
      INFORMATION
                          55ITEM 6.
                          EXHIBITS
      AND REPORTS ON FORM 8-K
                          55
 
  
  PART I. FINANCIAL INFORMATION
 
 ITEM
1.  FINANCIAL STATEMENTS
 
 KODIAK ENERGY, INC.Consolidated
      Balance Sheets(Exploration
      Stage Company Going Concern Uncertainty – Note 1)June
      30
                                                                                                                                
                                                                                                                                
                                                                                                                                December
      312009
                                                                                                                                
                                                                                                                                
                                                                                                                                2008(Unaudited)
                                                                                                                                
                                                                                                                                
                                                                                                                                (Audited)AssetsCurrent
      Assets:Cash
      and Short Term Deposits
                                                                                                                                
                                                                                                                                $
                                                                                                                                49,287
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                75,175Accounts
      Receivable (Note 5)
                                                                                                                                
                                                                                                                                
                                                                                                                                103,911
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                64,325Prepaid
      Expenses and Deposits
                                                                                                                                
                                                                                                                                
                                                                                                                                90,113
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                106,062243,311
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                245,562Other
      Assets (Note 6)
                                                                                                                                
                                                                                                                                
                                                                                                                                305,196
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                290,903Capital
      Assets (Note 7):Unproved
      Oil & Gas Properties Excluded FromAmortization – Based on Full Cost Accounting
                                                                                                                                
                                                                                                                                
                                                                                                                                25,241,187
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                36,559,367Property
      & Equipment
                                                                                                                                
                                                                                                                                
                                                                                                                                68,083
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                75,56525,309,270
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                36,634,932Total
      Assets
                                                                                                                                
                                                                                                                                $
                                                                                                                                25,857,777
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                37,171,397Liabilities
      and Shareholders' EquityCurrent
      Liabilities:Accounts
      Payable
                                                                                                                                
                                                                                                                                $
                                                                                                                                1,544,379
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                984,590Accrued
      Liabilities
                                                                                                                                
                                                                                                                                
                                                                                                                                80,044
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                122,842Note
      Payable to Related Party (Note 8)
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                32,841Advances
      (Note 9)
                                                                                                                                
                                                                                                                                
                                                                                                                                472,890
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -2,097,313
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                1,140,273Long-term
      Liabilities (Note 10)
                                                                                                                                
                                                                                                                                
                                                                                                                                41,136
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                39,262Asset
      Retirement Obligations (Note 11)
                                                                                                                                
                                                                                                                                
                                                                                                                                209,095
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                199,5742,347,544
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                1,379,109Commitments
      and Contingencies (Note 16)Shareholders'
      EquityShare
      Capital (Note 14):Authorized
      300,000,000 Common Shares Par Value $.001 Each; 10,000,000 Preferred
      SharesIssued and Outstanding 110,023,998Common Shares; Nil Preferred Shares
                                                                                                                                
                                                                                                                                
                                                                                                                                110,024
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                110,024Additional
      Paid in Capital
                                                                                                                                
                                                                                                                                
                                                                                                                                49,560,192
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                49,296,114Other
      Comprehensive Loss
                                                                                                                                
                                                                                                                                
                                                                                                                                (970,304
                                                                                                                                )
                                                                                                                                
                                                                                                                                
                                                                                                                                (4,903,762
                                                                                                                                )Deficit
      Accumulated during the Exploration Stage
                                                                                                                                
                                                                                                                                
                                                                                                                                (25,590,176
                                                                                                                                )
                                                                                                                                
                                                                                                                                
                                                                                                                                (8,710,088
                                                                                                                                )23,109,736
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                35,792,288Minority
      Interest Equity (Note 13)
                                                                                                                                
                                                                                                                                
                                                                                                                                400,497
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -Total
      Shareholders’ Equity
                                                                                                                                
                                                                                                                                
                                                                                                                                23,510,233
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                35,792,288Total
      Liabilities and Shareholders’ Equity
                                                                                                                                
                                                                                                                                $
                                                                                                                                25,857,777
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                37,171,397
 (See
accompanying notes to the consolidated financial statements)
 Subsequent
Events (Note 21)
  3
 
 KODIAK
ENERGY, INC.
 Unaudited
Consolidated Statements of Shareholders’ Equity
 Six
Months Ended June 30, 2009
 (Exploration
Stage Company Going Concern Uncertainty – Note 1)
 
 Number
      of
                                  Common
      Shares
                                
                                
                                Amount
                                
                                
                                Additional
                                  Paid
      in
                                  Capital
                                
                                
                                Deficit
                                  Accumulated
                                  During
      the
                                  Exploration
                                  Stage
                                
                                
                                Accumulated
                                  Other
                                  Comprehensive
                                  Loss
                                
                                
                                Minority
                                  Interest
                                
                                
                                Total
                                  Shareholders’
                                  EquityBalance
      at December 31, 2008
                                
                                
                                110,023,998
                                
                                
                                $
                                110,024
                                
                                
                                $
                                49,296,114
                                
                                
                                $
                                (8,710,088
                                )
                                
                                $
                                (4,903,762
                                )
                                
                                $
                                -
                                
                                
                                $
                                35,792,288Contributions
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                416,339
                                
                                
                                
                                416,339Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (16,880,088
                                )
                                
                                
                                -
                                
                                
                                
                                (15,842
                                )
                                
                                
                                (16,895,930
                                )Foreign
      currency translation
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,933,458
                                
                                
                                
                                
                                
                                
                                
                                3,933,458Comprehensive
      gain (loss)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (16,880,088
                                )
                                
                                
                                3,933,458
                                
                                
                                
                                (15,842
                                )
                                
                                
                                (12,962,472
                                )Common
      shares issued
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (30,641
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                
                                (30,641
                                )Stock-based
      Compensation
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                294,719
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                294,719Balance
      at June 30, 2009
                                
                                
                                110,023,998
                                
                                
                                $
                                110,024
                                
                                
                                $
                                49,560,192
                                
                                
                                $
                                (25,590,176
                                )
                                
                                $
                                (970,304
                                )
                                
                                $
                                400,497
                                
                                
                                $
                                23,510,233
  (See
accompanying notes to the  consolidated financial statements)
   4
 
 Kodiak
Energy Inc.
 Unaudited
Consolidated Statements of Operations
 (Exploration
Stage Company Going Concern Uncertainty – Note 1)
 CumulativeThree
      Months
                                                      
                                                      
                                                      Three
      Months
                                                      
                                                      
                                                      Six
      Months
                                                      
                                                      
                                                      Six
      Months
                                                      
                                                      
                                                      Since
      InceptionEnded
      June 30,
                                                      
                                                      
                                                      Ended
      June 30, 2008
                                                      
                                                      
                                                      Ended
      June 30,
                                                      
                                                      
                                                      Ended
      June 30, 2008
                                                      
                                                      
                                                      Apr.
      7, 2004 to2009
                                                      
                                                      
                                                      (Restated
      – Note 2)
                                                      
                                                      
                                                      2009
                                                      
                                                      
                                                      (Restated
      – Note 2)
                                                      
                                                      
                                                      June
      30, 2009INCOME
      DURING THE EVALUATION PERIOD
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      46
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      46
                                                      
                                                      
                                                      $
                                                      28,424EXPENSESOperating
                                                      
                                                      
                                                      1,002
                                                      
                                                      
                                                      
                                                      4,999
                                                      
                                                      
                                                      
                                                      2,172
                                                      
                                                      
                                                      
                                                      5,273
                                                      
                                                      
                                                      
                                                      45,923General
      and Administrative
                                                      
                                                      
                                                      356,427
                                                      
                                                      
                                                      
                                                      557,918
                                                      
                                                      
                                                      
                                                      849,889
                                                      
                                                      
                                                      
                                                      1,070,083
                                                      
                                                      
                                                      
                                                      6,927,479Stock-based
      Investor Relations
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      337,500Depletion,
      Depreciation and AccretionIncluding Ceiling Test Impairment
                                                      
                                                      
                                                      16,034,536
                                                      
                                                      
                                                      
                                                      13,573
                                                      
                                                      
                                                      
                                                      16,042,324
                                                      
                                                      
                                                      
                                                      25,277
                                                      
                                                      
                                                      
                                                      18,692,518Write-downsInterest
                                                      
                                                      
                                                      93
                                                      
                                                      
                                                      
                                                      1,257
                                                      
                                                      
                                                      
                                                      304
                                                      
                                                      
                                                      
                                                      1,257
                                                      
                                                      
                                                      
                                                      904,61516,392,058
                                                      
                                                      
                                                      
                                                      577,747
                                                      
                                                      
                                                      
                                                      16,894,689
                                                      
                                                      
                                                      
                                                      1,101,890
                                                      
                                                      
                                                      
                                                      26,908,045Loss
      Before Other Expenses
                                                      
                                                      
                                                      (16,392,058
                                                      )
                                                      
                                                      
                                                      (577,701
                                                      )
                                                      
                                                      
                                                      (16,894,689
                                                      )
                                                      
                                                      
                                                      (1,101,844
                                                      )
                                                      
                                                      
                                                      (26,879,621
                                                      )Other
      Expenses (Income)Loss
      from valuation adjustment
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      25,000Loss
      on disposition of assets
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (2,164
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (6,309
                                                      )Interest Income
                                                      
                                                      
                                                      725
                                                      
                                                      
                                                      
                                                      4,514
                                                      
                                                      
                                                      
                                                      923
                                                      
                                                      
                                                      
                                                      61,500
                                                      
                                                      
                                                      
                                                      179,077725
                                                      
                                                      
                                                      
                                                      (4,514
                                                      )
                                                      
                                                      
                                                      (1,241
                                                      )
                                                      
                                                      
                                                      (61,500
                                                      )
                                                      
                                                      
                                                      147,768Net
      Loss before taxes
                                                      
                                                      
                                                      (16,391,333
                                                      )
                                                      
                                                      
                                                      (573,187
                                                      )
                                                      
                                                      
                                                      (16,895,930
                                                      )
                                                      
                                                      
                                                      (1,040,344
                                                      )
                                                      
                                                      
                                                      (26,731,853
                                                      )Deferred
      Income Taxes (Recovery)
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (24,000
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (950,000
                                                      )
                                                      
                                                      
                                                      1,125,835Net
      Loss before Minority Interest
                                                      
                                                      
                                                      (16,391,333
                                                      )
                                                      
                                                      
                                                      (549,187
                                                      )
                                                      
                                                      
                                                      (16,895,930
                                                      )
                                                      
                                                      
                                                      (90,344
                                                      )
                                                      
                                                      
                                                      (25,606,018
                                                      )Minority
      Interest
                                                      
                                                      
                                                      11,780
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      15,842
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      15,842NET LOSS
                                                      
                                                      $
                                                      (16,379,553
                                                      )
                                                      
                                                      $
                                                      (549,187
                                                      )
                                                      
                                                      $
                                                      (16,880,088
                                                      )
                                                      
                                                      $
                                                      (90,344
                                                      )
                                                      
                                                      $
                                                      (25,590,176
                                                      )
  (See
accompanying notes to the consolidated financial statements)
 Loss per
share data (Note 15)
 
  5
 
 KODIAK
ENERGY, INC.
 Unaudited
Consolidated Statements of Cash Flows
 (Exploration
Stage Company Going Concern Uncertainty – Note 1)
 Three
      MonthsEnded
                                                                                                                  June
      30, 2009
                                                                                                                
                                                                                                                
                                                                                                                Three
      MonthsEnded
                                                                                                                  June30,
      2008
                                                                                                                
                                                                                                                
                                                                                                                Six
      Months Ended
                                                                                                                  June
      30, 2009
                                                                                                                
                                                                                                                
                                                                                                                Six
      Months Ended
                                                                                                                  June
      30, 2008
                                                                                                                
                                                                                                                
                                                                                                                Cumulative
                                                                                                                  Since
      Inception
                                                                                                                  April
      7, 2004 to
                                                                                                                  June
      30, 2009Operating
      ActivitiesNet Loss
                                                                                                                
                                                                                                                $
                                                                                                                (16,379,553
                                                                                                                )
                                                                                                                
                                                                                                                $
                                                                                                                (549,187
                                                                                                                )
                                                                                                                
                                                                                                                $
                                                                                                                (16,880,088
                                                                                                                )
                                                                                                                
                                                                                                                $
                                                                                                                (90,344
                                                                                                                )
                                                                                                                
                                                                                                                $
                                                                                                                (25,590,176
                                                                                                                )Adjustments
      to reconcile net loss to net
      cash used in operating activities:Minority
      Interest
                                                                                                                
                                                                                                                
                                                                                                                (11,780
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (15,842
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (15,842
                                                                                                                )Depletion, Depreciation and Accretion Including Ceiling Test Impairment
      Write-downs
                                                                                                                
                                                                                                                
                                                                                                                16,034,536
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                13,573
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                16,042,324
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                25,277
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                18,692,518Non-cash Interest Expense
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                808,811Stock-Based Investor Relations Expense
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                337,500Stock-Based Compensation
                                                                                                                
                                                                                                                
                                                                                                                142,672
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                165,469
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                294,719
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                355,605
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,682,048Deferred Income Taxes (Recovery)
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (24,000
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (950,000
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (1,125,835
                                                                                                                )Loss
      on disposition of fixed assets
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (2,164
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (2,164
                                                                                                                )Bad Debts Written Off
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                11,908Contributions to Capital
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                900Non-Cash Working Capital Changes (Note 20)
                                                                                                                
                                                                                                                
                                                                                                                (9,643
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                12,873
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                193,432
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                616,337
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                436,146Net
      Cash Used In Operating Activities
                                                                                                                
                                                                                                                
                                                                                                                (223,768
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (381,272
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (367,619
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (43,125
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (4,764,186
                                                                                                                )Investment
      Activities:Additions To Capital Assets
                                                                                                                
                                                                                                                
                                                                                                                (124,257
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (5,683,591
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (394,186
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (10,857,261
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (21,285,877
                                                                                                                )Additions To Other Assets
                                                                                                                
                                                                                                                
                                                                                                                (24,085
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (2,981
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (14,293
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                13,050
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (305,196
                                                                                                                )Net
      Cash Used In Investment Activities
                                                                                                                
                                                                                                                
                                                                                                                (148,342
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (5,586,572
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (408,479
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (10,844,211
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (21,591,073
                                                                                                                )Financing
      ActivitiesShares
      Issued and Issuable
                                                                                                                
                                                                                                                
                                                                                                                (19,458
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                2,897,184
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (98,648
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                2,774,122
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                23,748,664Proceeds from Note Payable
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3,300,000Repayment of Note Payable
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (732,500
                                                                                                                )Advances Received on Financing
                                                                                                                
                                                                                                                
                                                                                                                472,890
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                472,890
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                472,890Minority Interest Contribution
                                                                                                                
                                                                                                                
                                                                                                                22,879
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                416,339
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                416,339Long
      term liabilities
                                                                                                                
                                                                                                                
                                                                                                                3,221
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                311
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,874
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (64,057
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                41,136Net
      Cash Provided By Financing  Activities
                                                                                                                
                                                                                                                
                                                                                                                479,532
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2,897,495
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                792,455
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2,710,065
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                27,246,529Foreign
      Currency Translation
                                                                                                                
                                                                                                                
                                                                                                                (63,567
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                10,408
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (42,245
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (68,812
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (841,982
                                                                                                                )Net
      Cash Increase (Decrease)
                                                                                                                
                                                                                                                
                                                                                                                43,855
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (3,059,941
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (25,888
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                (8,246,083
                                                                                                                )
                                                                                                                
                                                                                                                
                                                                                                                49,287Cash
      beginning of period
                                                                                                                
                                                                                                                
                                                                                                                5,432
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                3,797,540
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                75,175
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                8,983,682
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                -Cash
      end of period
                                                                                                                
                                                                                                                $
                                                                                                                49,287
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                737,599
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                49,287
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                737,599
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                49,287Cash
      is comprised of:Balances
      with banks
                                                                                                                
                                                                                                                $
                                                                                                                49,287
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                737,599
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                49,287
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                737,599
                                                                                                                
                                                                                                                
                                                                                                                $
                                                                                                                49,287
  (See
accompanying notes to the consolidated financial statements)
  6
 
 KODIAK
ENERGY, INC.
 NOTES TO
THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 For the
Six Months Ended June 30, 2009 and 2008
 Stated in
US dollars
 
 
 1.   ORGANIZATION,
BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY
 
 The
accompanying consolidated financial statements include the accounts of Kodiak
Energy, Inc. and subsidiaries (collectively “Kodiak”, the “Company”, “we”, “us”
or “our”) as at June 30, 2009  and December 31, 2008 and for the three
and six months ended June 30, 2009 and 2008 and for the cumulative period from
April 7, 2004 (inception) until June 30, 2009, and are presented in accordance
with generally accepted accounting principles in the United States of America
(“U. S. GAAP”).
 
 The
Company was incorporated under the laws of the state of Delaware on December 15,
1999 under the name “Island Critical Care, Corp.” with authorized common stock
of 50,000,000 shares with a par value of $0.001. On December 30, 2004 the name
was changed to “Kodiak Energy, Inc.” and the authorized common stock was
increased to 100,000,000 shares with the same par value. On January 17, 2005 the
Company affected a reverse split of 100 outstanding shares for one share. These
consolidated financial statements have been prepared showing post split shares
from inception. The Company was engaged in the development , manufacture and
distribution of medical instrumentation and became inactive after the bankruptcy
outlined below. During 2006, the Company increased its authorized capital to
300,000,000 common shares and in December, 2008 increased its authorized capital
to include 10,000,000 preferred shares.
 
 The
Company is in the exploration stage and its efforts have been principally
devoted to the raising of capital, organizational infrastructure development,
the acquisition of oil and gas properties and the initial stages of exploration
to establish reserves for the purpose of future extraction of
resources.
 
 The
information in these consolidated financial statements should be read in
conjunction with the December 31, consolidated financial
statements.
 
 Bankruptcy
 
 On
February 5, 2003 the Company filed a petition for bankruptcy in the District of
Prince Edward Island, Division No. 01-Prince Edward Island Court No. 1713,
Estate No. 51-104460, titled “Island Critical Care Corp.”. The Company emerged
from bankruptcy pursuant to a Bankruptcy Court Order entered on April 7, 2004
with no remaining assets or liabilities and adopted Fresh Start
Accounting.
  7
 
 The terms
of the bankruptcy settlement included the authorization for the issuance of
150,000 post split restricted common shares in exchange for $25,000, which was
paid into the bankruptcy court by the recipient of the shares.
 
 The
Company emerged from bankruptcy as an exploration stage company.
  Going Concern
Uncertainty
 
 These
consolidated financial statements have been prepared assuming the Company will
continue as a going concern, which presumes the realization of assets and
discharge of liabilities in the normal course of business for the foreseeable
future. The Company has not generated positive cash flow since inception and has
incurred operating losses and will need additional working capital for
completion of its planned programs. These conditions raise doubt about the
Company’s ability to continue as a going concern. Continuation of the Company as
a going concern is dependent upon obtaining sufficient working capital to
finance ongoing operations. The management of the Company has developed a
strategy to address this uncertainty, including additional equity and/or debt
financing; however, there are no assurances that any such financing can be
obtained on favorable terms, if at all, or that the Company will generate
positive cash flow. These financial statements do not reflect the adjustments or
reclassification of assets and liabilities that would be necessary if the
Company were unable to continue its operations.
 
 2.
RESTATEMENT
 
 In March,
2009, we determined that it was necessary to restate our financial statements as
at December 31, 2007. The purpose of the restatement was to correct an error in
measurement and an error in the application of US GAAP in the course of
recording the following 2007 transactions:
  Issue of common shares of
the Company in consideration for the acquisition of
properties.
 On
September 28, 2007, the Company issued to Thunder River Energy, Inc. (“Thunder”)
7,000,000 common shares of the Company as partial consideration for the
acquisition of properties. The shares issued were recorded at a negotiated price
per share of US$2.00 or $14,000,000. In the course of a review by the Securities
and Exchange Commission (“SEC”) of the Company’s Form 10-Q for the Fiscal
Quarter Ended September 30, 2007 and Form 10-K for the Fiscal Year Ended
December 31, 2007, the SEC questioned the measurement date and the $2.00 per
share value at which the transaction was recorded. Following an exchange of
correspondence and discussions between the Company and the SEC during 2008 and
2009 regarding this issue, the Company has determined that the acquisition
should have been recorded at a value per share of $2.50 or $17,500,000, which
represents the fair value of exactly comparable common shares issued at the same
$2.50 price per share as a private placement financing for 2,756,000 common
shares which closed on September 28, 2007, the same date that the Thunder
transaction closed. Management believes that the $2.50 Kodiak share price to be
the most reliable measurement for the fair value of the shares issued and that
September 28, 2008 to be the appropriate measurement date because that was the
date when the parties’ closing conditions were satisfied and Thunder’s (the
counterparty’s) performance was complete. The result of the restatement
adjustment was an increase of $3,500,000 in the recorded acquisition cost and
related issuance of common shares.
  8
 
 Issue of flow-through common
shares of the Company at a premium.
 On
September 28, 2007, October 3, 2007 and October 30, 2007, the Company issued on
a Canadian flow-through share basis 2,251,670 common shares of the Company at
$3.00 per share or $6,755,010, which amount represented a premium of $.50 per
share or $1,125,835 when compared to other non-flow through shares issued at the
same time at $2.50 per share. At the time of the transactions, the issues of the
flow through common shares were recorded as appropriate credits to par value of
common shares and additional paid in capital. Following recent discussions with
the Company’s tax consultant, the Company has determined that the $1,125,835
premium on flow-through common shares issued should have, in accordance with US
GAAP, been recorded as a liability at the time the shares were issued rather
than as additional paid in capital. A $147,000 portion of the premium liability
discharged during the period October 1, 2007 to December 31, 2007, when
flow-through eligible expenditures amounting to $879,922 were incurred by the
Company, was recognized as a reduction of deferred tax expense.
 
 Effects
of the restatement by line item follow:
 
 Consolidated  December
31, 2007 Balance Sheet
 
 As
      Previously
                                                
                                                
                                                ImpactReported
                                                
                                                
                                                of Errors
                                                
                                                
                                                RestatedCash
      and Short Term Deposits
                                                
                                                $
                                                8,983,682
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                8,983,682Accounts
      Receivable
                                                
                                                
                                                1,214,253
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,214,253Prepaid
      Expenses and Deposits
                                                
                                                
                                                90,475
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                90,475Total
      current assets
                                                
                                                
                                                10,288,410
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                10,288,410Other
      Assets
                                                
                                                
                                                359,353
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                359,353Unproved
      Oil and Gas Properties
                                                
                                                
                                                23,967,351
                                                
                                                
                                                
                                                3,500,000
                                                
                                                
                                                
                                                27,467,351Furniture
      and Fixtures
                                                
                                                
                                                75,654
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                75,654Total
      Property, Plant and Equipment
                                                
                                                
                                                24,043,005
                                                
                                                
                                                
                                                3,500,000
                                                
                                                
                                                
                                                27,543,005Total
      Assets
                                                
                                                $
                                                34,690,768
                                                
                                                
                                                
                                                3,500,000
                                                
                                                
                                                
                                                38,190,768Accounts
      Payable
                                                
                                                $
                                                1,547,273
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,547,273Accrued
      Liabilities
                                                
                                                
                                                755,282
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                755,282Premium
      on Flow-through Shares Issued
                                                
                                                
                                                -
                                                
                                                
                                                
                                                978,835
                                                
                                                
                                                
                                                978,835Total
      current liabilities
                                                
                                                
                                                2,302,555
                                                
                                                
                                                
                                                978,835
                                                
                                                
                                                
                                                3,281,390Long
      Term Liabilities (Note 9)
                                                
                                                
                                                110,955
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                110,955Asset
      Retirement Obligations
                                                
                                                
                                                151,814
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                151,814Deferred
      Income Taxes (Note 11)
                                                
                                                
                                                57,000
                                                
                                                
                                                
                                                (57,000
                                                )
                                                
                                                
                                                -Share
      Capital
                                                
                                                
                                                106,692
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                106,692Additional
      Paid in Capital
                                                
                                                
                                                39,143,392
                                                
                                                
                                                
                                                2,374,165
                                                
                                                
                                                
                                                41,517,557Other
      Comprehensive Loss
                                                
                                                
                                                (342,201
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (342,201
                                                )Deficit
      Accumulated during the Exploration Stage
                                                
                                                
                                                (6,839,439
                                                )
                                                
                                                
                                                204,000
                                                
                                                
                                                
                                                (6,635,439
                                                )Total
      Shareholders’ Equity
                                                
                                                
                                                32,068,444
                                                
                                                
                                                
                                                2,578,165
                                                
                                                
                                                
                                                34,646,609Total
      Liabilities and Shareholders’ Equity
                                                
                                                $
                                                34,690,768
                                                
                                                
                                                
                                                3,500,000
                                                
                                                
                                                
                                                38,190,768
  9
 
 Consolidated Statement of
Operations – Year Ended December 31, 2007
 
 As
      Previously
                                                    Reported
                                                  
                                                  
                                                  Impact
                                                    of
      Errors
                                                  
                                                  
                                                  As
      RestatedIncome
      During the Evaluation Period
                                                  
                                                  $
                                                  225
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  225Expenses:Operating
                                                  
                                                  
                                                  20,543
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  20,543General
      and Administrative
                                                  
                                                  
                                                  2,470,230
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  2,470,230Stock-based
      Investor Relations
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  -Depletion,
      Depreciation and Accretion including Ceiling Test Impairment
      Writedowns
                                                  
                                                  
                                                  218,841
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  218,841Interest
                                                  
                                                  
                                                  94,083
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  94,0832,803,697
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  2,803,697Loss
      Before Other Income
                                                  
                                                  
                                                  2,803,472
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  2,803,472Interest
      Income
                                                  
                                                  
                                                  (84,809
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (84,809
                                                  )Loss
      before Income Taxes
                                                  
                                                  $
                                                  (2,718,663
                                                  )
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  (2,718,663
                                                  )Provision
      (Recovery) of Deferred Taxes
                                                  
                                                  
                                                  57,000
                                                  
                                                  
                                                  
                                                  (204,000
                                                  )
                                                  
                                                  
                                                  (147,000
                                                  )Net
      Loss
                                                  
                                                  
                                                  (2,775,663
                                                  )
                                                  
                                                  
                                                  (204,000
                                                  )
                                                  
                                                  
                                                  (2,571,663
                                                  )Basic
      and Diluted Loss per Share
                                                  
                                                  $
                                                  (0.03
                                                  )
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  (0.03
                                                  )
 
  10
  Consolidated Statement of
Shareholders' Equity Period April 7, 2004 (Date of Inception) to December 31,
2007
 
 Par
                                    Value
                                  
                                  
                                  
                                  Additional
                                    Paid
      in
                                    Capital
                                  
                                  
                                  
                                  Deficit
                                    Accumulated
                                    during
      the
                                    Development
                                    Stage
                                  
                                  
                                  
                                  Accumulated
                                    Other
                                    Comprehensive
                                    Loss
                                  
                                  
                                  
                                  Total
                                    Shareholders'
                                    EquityBalance
      December 31, 2007 as Previously Reported
                                  
                                  
                                  106,692
                                  
                                  
                                  $
                                  39,143,392
                                  
                                  
                                  $
                                  (6,839,439
                                  )
                                  
                                  $
                                  (342,201
                                  )
                                  
                                  $
                                  32,068,444Impact
      of Errors
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,374,165
                                  
                                  
                                  
                                  204,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,578,165Balance
      December 31, 2007 as Restated
                                  
                                  
                                  106,692
                                  
                                  
                                  
                                  41,517,560
                                  
                                  
                                  $
                                  (6,635,439
                                  )
                                  
                                  $
                                  (342,201
                                  )
                                  
                                  $
                                  34,646,609
 
 Consolidated Statement of
Cash Flow – Year Ended December 31, 2007
 
 As
      Previously
                                  Reported
                                
                                
                                Impact
                                  of
      Errors
                                
                                
                                As
      RestatedOperating
      ActivitiesNet
      Loss
                                
                                $
                                (2,775,663
                                )
                                
                                $
                                204,000
                                
                                
                                $
                                (2,571,663
                                )Depletion,
      Depreciation and Accretion including Ceiling Test Impairment
      Write-downs
                                
                                
                                218,841
                                
                                
                                
                                -
                                
                                
                                
                                218,841Stock-Based
      Compensation
                                
                                
                                643,994
                                
                                
                                
                                -
                                
                                
                                
                                643,994Provision
      for Deferred Income Taxes
                                
                                
                                57,000
                                
                                
                                
                                (204,000
                                )
                                
                                
                                (147,000
                                )Bad
      Debts Written Off
                                
                                
                                11,908
                                
                                
                                
                                -
                                
                                
                                
                                -Non-Cash
      Working Capital Changes
                                
                                
                                (660,101
                                )
                                
                                
                                -
                                
                                
                                
                                (660,101
                                )Net
      Cash Used in Operating Activities
                                
                                
                                (2,504,081
                                )
                                
                                
                                -
                                
                                
                                
                                (2,504,081
                                )Investing
      ActivitiesAdditions
      to Capital Assets
                                
                                
                                (7,508,553
                                )
                                
                                
                                -
                                
                                
                                
                                (7,508,553
                                )Additions
      to Other Assets
                                
                                
                                (309,493
                                )
                                
                                
                                -
                                
                                
                                
                                (309,493
                                )Cash
      Used in Investing Activities
                                
                                
                                (7,818,046
                                )
                                
                                
                                -
                                
                                
                                
                                (7,818,046
                                )Financing
      ActivitiesShares
      Issued and Issuable
                                
                                
                                19,068,495
                                
                                
                                
                                -
                                
                                
                                
                                19,068,495Long
      Term Liabilities
                                
                                
                                110,955
                                
                                
                                
                                -
                                
                                
                                
                                110,955Cash
      Provided by Financing Activities
                                
                                
                                19,179,450
                                
                                
                                
                                -
                                
                                
                                
                                19,179,450Foreign
      Currency Translation
                                
                                
                                (321,987
                                )
                                
                                
                                
                                
                                
                                
                                (321,987
                                )Net
      Cash Increase
                                
                                
                                8,535,336
                                
                                
                                
                                
                                
                                
                                
                                8,535,336Cash
      Beginning of Year
                                
                                
                                448,346
                                
                                
                                
                                
                                
                                
                                
                                448,346Cash
      End of Year
                                
                                $
                                8,983,
      682
                                
                                
                                $
                                -
                                
                                
                                $
                                8,983,682
  11
 
 Following
are the effects by line item that the 2007 restatement had on the June 30, 2008
Balance Sheet and results of operations and cash flow for the Three and Six
Months Ended June 30, 2008:
 
 Consolidated  June
30, 2008 Balance Sheet
 
 As
      Previously
                              
                              
                              ImpactReported
                              
                              
                              of Errors
                              
                              
                              RestatedCash
      and Short Term Deposits
                              
                              $
                              737,599
                              
                              
                              
                              -
                              
                              
                              $
                              737,599Accounts
      Receivable
                              
                              
                              1,359,618
                              
                              
                              
                              -
                              
                              
                              
                              1,359,618Prepaid
      Expenses and Deposits
                              
                              
                              123,141
                              
                              
                              
                              -
                              
                              
                              
                              123,141Total
      current assets
                              
                              
                              2,220,358
                              
                              
                              
                              -
                              
                              
                              
                              2,220,358Other
      Assets
                              
                              
                              346,303
                              
                              
                              
                              -
                              
                              
                              
                              346,303Unproved
      Oil and Gas Properties
                              
                              
                              33,567,220
                              
                              
                              
                              3,500,000
                              
                              
                              
                              37,067,220Furniture
      and Fixtures
                              
                              
                              80,287
                              
                              
                              
                              -
                              
                              
                              
                              80,287Total
      Property, Plant and Equipment
                              
                              
                              33,647,507
                              
                              
                              
                              3,500,000
                              
                              
                              
                              37,147,507Total
      Assets
                              
                              $
                              36,214,168
                              
                              
                              
                              3,500,000
                              
                              
                              
                              39,714,168Accounts
      Payable
                              
                              $
                              1,067,083
                              
                              
                              
                              -
                              
                              
                              
                              1,067,083Accrued
      Liabilities
                              
                              
                              446,303
                              
                              
                              
                              -
                              
                              
                              
                              446,303Premium
      on Flow-through Shares Issued
                              
                              
                              -
                              
                              
                              
                              28,835
                              
                              
                              
                              28,835Total
      current liabilities
                              
                              
                              1,513,386
                              
                              
                              
                              28,835
                              
                              
                              
                              1,542,221Long
      Term Liabilities (Note 10)
                              
                              
                              46,898
                              
                              
                              
                              -
                              
                              
                              
                              46,898Asset
      Retirement Obligations
                              
                              
                              244,401
                              
                              
                              
                              -
                              
                              
                              
                              244,401Deferred
      Income Taxes (Note 11)
                              
                              
                              52,000
                              
                              
                              
                              (52,000
                              )
                              
                              
                              -1,856,685
                              
                              
                              
                              (23,165
                              )
                              
                              
                              1,833,520Share
      Capital
                              
                              
                              108,024
                              
                              
                              
                              -
                              
                              
                              
                              108,024Additional
      Paid in Capital
                              
                              
                              42,535,155
                              
                              
                              
                              2,374,165
                              
                              
                              
                              44,909,420Other
      Comprehensive Loss
                              
                              
                              (411,013
                              )
                              
                              
                              -
                              
                              
                              
                              (411,013
                              )Deficit
      Accumulated during the Exploration Stage
                              
                              
                              (7,874,783
                              )
                              
                              
                              1,149,000
                              
                              
                              
                              (6,725,783
                              )Total
      Shareholders’ Equity
                              
                              
                              34,357,483
                              
                              
                              
                              3,523,165
                              
                              
                              
                              37,880,648Total
      Liabilities and Shareholders’ Equity
                              
                              $
                              36,214,168
                              
                              
                              
                              3,500,000
                              
                              
                              
                              39,714,168
                              )
  12
 
 Consolidated Statement of
Shareholders' Equity Period April 7, 2004 (Date of Inception) to June 30,
2008
  Par
                                        Value
                                      
                                      
                                      Additional
                                        Paid
      in
                                        Capital
                                      
                                      
                                      Deficit
                                        Accumulated
                                        during
      the
                                        Development
                                        Stage
                                      
                                      
                                      Accumulated
                                        Other
                                        Comprehensive
                                        Loss
                                      
                                      
                                      Total
                                        Shareholders'
                                        EquityBalance
      June 30, 2008 as Previously Reported
                                      
                                      
                                      108,024
                                      
                                      
                                      
                                      42,535,255
                                      
                                      
                                      $
                                      (7,874,783
                                      )
                                      
                                      $
                                      (411,013
                                      )
                                      
                                      $
                                      34,357,483Impact
      of Errors
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,374,165
                                      
                                      
                                      
                                      1,149,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,523,165Balance
      June 30, 2008 as Restated
                                      
                                      
                                      108,024
                                      
                                      
                                      
                                      44,909,420
                                      
                                      
                                      $
                                      (6,725,783
                                      )
                                      
                                      $
                                      (411,013
                                      )
                                      
                                      $
                                      37,880,648
 
 Consolidated Statement of
Operations – Three Months Ended June 30, 2008
 
 As
      Previously
                                                  Reported
                                                
                                                
                                                Impact
                                                  ofErrors
                                                
                                                
                                                As
      RestatedIncome
      During the Evaluation Period
                                                
                                                $
                                                46
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                46Expenses:Operating
                                                
                                                
                                                4,999
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                4,999General
      and Administrative
                                                
                                                
                                                557,918
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                557,918Depletion,
      Depreciation and Accretion
                                                
                                                
                                                13,573
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                13,573Interest
                                                
                                                
                                                1,257
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,257577,747
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                577,747Loss
      Before Other Income
                                                
                                                
                                                (577,701
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (577,701
                                                )Interest
      Income
                                                
                                                
                                                (4,514
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (4,514
                                                )Loss
      before Taxes
                                                
                                                $
                                                (573,187
                                                )
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                (573,187
                                                )Recovery
      of Deferred Taxes
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (24,000
                                                )
                                                
                                                
                                                (24,000
                                                )Net
      Income (Loss)
                                                
                                                
                                                (573,187
                                                )
                                                
                                                
                                                (24,000
                                                )
                                                
                                                
                                                (549,187
                                                )Basic
      & Diluted Loss per Share
                                                
                                                $
                                                (0.01
                                                )
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                (0.01
                                                )
 
  13
 
 Consolidated Statement of
Cash Flow – Three Months Ended June 30, 2008
 
 As
      Previously
                                  Reported
                                
                                
                                Impact
                                  ofErrors
                                
                                
                                As
      RestatedOperating
      ActivitiesNet
      Loss
                                
                                $
                                (573,187
                                )
                                
                                $
                                (24,000
                                )
                                
                                $
                                (549,187
                                )Depletion,
      Depreciation and Accretion including Ceiling Test Impairment
      Write-downs
                                
                                
                                13,573
                                
                                
                                
                                -
                                
                                
                                
                                13,573Stock-Based
      Compensation
                                
                                
                                165,469
                                
                                
                                
                                -
                                
                                
                                
                                165,469Deferred
      Income Tax Recovery
                                
                                
                                -
                                
                                
                                
                                (24,000
                                )
                                
                                
                                (24,000
                                )Non-Cash
      Working Capital Changes
                                
                                
                                12,873
                                
                                
                                
                                -
                                
                                
                                
                                12,873Net
      Cash Used in Operating Activities
                                
                                
                                (381,272
                                )
                                
                                
                                -
                                
                                
                                
                                381,272Investing
      ActivitiesAdditions
      to Capital Assets
                                
                                
                                (5,583,591
                                )
                                
                                
                                -
                                
                                
                                
                                (5,583,591
                                )(Increase)
      Decrease in Other Assets
                                
                                
                                (2,981
                                )
                                
                                
                                -
                                
                                
                                
                                (2,891
                                )Cash
      Used in Investing Activities
                                
                                
                                (5,586,572
                                )
                                
                                
                                -
                                
                                
                                
                                (5,586,572
                                )Financing
      ActivitiesShares
      Issued and Issuable
                                
                                
                                2,897,184
                                
                                
                                
                                -
                                
                                
                                
                                2,897,184Long
      Term Liabilities
                                
                                
                                311
                                
                                
                                
                                -
                                
                                
                                
                                311Cash
      Provided by Financing Activities
                                
                                
                                2,897,495
                                
                                
                                
                                -
                                
                                
                                
                                2,897,495Foreign
      Currency Translation
                                
                                
                                10,408
                                
                                
                                
                                -
                                
                                
                                
                                10,408Net
      Cash Increase
                                
                                
                                (3,059,941
                                )
                                
                                
                                -
                                
                                
                                
                                (3,059,941
                                )Cash
      Beginning of Period
                                
                                
                                3,797,540
                                
                                
                                
                                -
                                
                                
                                
                                3,797,540Cash
      End of Period
                                
                                $
                                737,599
                                
                                
                                $
                                -
                                
                                
                                $
                                737,599
 
 Consolidated Statement of
Operations – Six Months Ended June 30, 2008
 
 As
      Previously
                                        Reported
                                      
                                      
                                      Impact
                                        ofErrors
                                      
                                      
                                      As
      RestatedIncome
      During the Evaluation Period
                                      
                                      $
                                      46
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      46Expenses:Operating
                                      
                                      
                                      5,273
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      5,273General
      and Administrative
                                      
                                      
                                      1,070,083
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,070,083Depletion,
      Depreciation and Accretion
                                      
                                      
                                      25,277
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      25,277Interest
                                      
                                      
                                      1,257
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,2571,101,890
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,101,890Loss
      Before Other Income
                                      
                                      
                                      (1,101,844
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (1,101,844
                                      )Interest
      Income
                                      
                                      
                                      61,500
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (61,500
                                      )Loss
      before Taxes
                                      
                                      $
                                      (1,040,344
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      (1,040,344
                                      )Recovery
      of Deferred Taxes
                                      
                                      
                                      (5,000
                                      )
                                      
                                      
                                      (945,000
                                      )
                                      
                                      
                                      (950,000
                                      )Net
      Income (Loss)
                                      
                                      
                                      (1,035,344
                                      )
                                      
                                      
                                      (945,000
                                      )
                                      
                                      
                                      (90,344
                                      )Basic
      & Diluted Loss per Share
                                      
                                      $
                                      (0.01
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      (0.00
                                      )
 
  14
 
 Consolidated Statement of
Cash Flow – Six Months Ended June 30, 2008
 
 As
      Previously
                                  Reported
                                
                                
                                Impact
                                  ofErrors
                                
                                
                                As
      RestatedOperating
      ActivitiesNet
      Loss
                                
                                $
                                (1,035,344
                                )
                                
                                $
                                945,000
                                
                                
                                $
                                (90,344
                                )Depletion,
      Depreciation and Accretion including Ceiling Test Impairment
      Write-downs
                                
                                
                                25,277
                                
                                
                                
                                -
                                
                                
                                
                                25,277Stock-Based
      Compensation
                                
                                
                                355,605
                                
                                
                                
                                -
                                
                                
                                
                                355,605Deferred
      Income Tax Recovery
                                
                                
                                (5,000
                                )
                                
                                
                                (945,000
                                )
                                
                                
                                (950,000
                                )Non-Cash
      Working Capital Changes
                                
                                
                                616,337
                                
                                
                                
                                -
                                
                                
                                
                                616,337Net
      Cash Used in Operating Activities
                                
                                
                                (43,125
                                )
                                
                                
                                -
                                
                                
                                
                                (43,125
                                )Investing
      ActivitiesAdditions
      to Capital Assets
                                
                                
                                (10,857,261
                                )
                                
                                
                                -
                                
                                
                                
                                (10,857,261
                                )Decrease
      in Other Assets
                                
                                
                                13,050
                                
                                
                                
                                -
                                
                                
                                
                                13,050Cash
      Used in Investing Activities
                                
                                
                                (10,844,211
                                )
                                
                                
                                -
                                
                                
                                
                                (10,844,211
                                )Financing
      ActivitiesShares
      Issued and Issuable
                                
                                
                                2,774,122
                                
                                
                                
                                -
                                
                                
                                
                                2,774,122Long
      Term Liabilities
                                
                                
                                (64,057
                                )
                                
                                
                                -
                                
                                
                                
                                (64,057
                                )Cash
      Provided by Financing Activities
                                
                                
                                2,710,065
                                
                                
                                
                                -
                                
                                
                                
                                2,710,065Foreign
      Currency Translation
                                
                                
                                (68,812
                                )
                                
                                
                                
                                
                                
                                
                                (68,812
                                )Net
      Cash Increase
                                
                                
                                (8,246,083
                                )
                                
                                
                                
                                
                                
                                
                                (8,246,083
                                )Cash
      Beginning of Period
                                
                                
                                8,983,682
                                
                                
                                
                                
                                
                                
                                
                                8,983,682Cash
      End of Period
                                
                                $
                                737,599
                                
                                
                                $
                                -
                                
                                
                                $
                                737,599
 
 
 3.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of
Presentation
 
 These
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Kodiak Petroleum ULC, Kodiak Petroleum (Montana),
Inc., Kodiak Petroleum (Utah), Inc. and its 93.6% owned subsidiary Cougar
Energy, Inc. (formerly 1438821 Alberta Ltd.). In British Columbia, Canada, the
Company operates under the assumed name of Kodiak Bear Energy, Inc. All
intercompany accounts and transactions have been eliminated.
  15
 
 Use of Estimates in the
Preparation of Financial Statements
 
 The
preparation of financial statements in conformity with U. S. GAAP requires
management to make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Although these
estimates are based on the knowledge of current events and actions the Company
may undertake in the future, they may ultimately differ from actual results.
Included in these estimates are assumptions about allowances for valuation of
deferred tax assets. Accounts receivable are stated after evaluation as to their
collectability and an appropriate allowance for doubtful accounts is provided
where considered necessary. The provision for asset retirement obligation,
depletion, as well as management’s impairment assessment on its oil and gas
properties and other long lived assets are based on estimates and by their
nature, these estimates are subject to measurement uncertainty and the effect on
the financial statements of changes in these estimates, in future periods, could
be significant. These estimates and assumptions are reviewed periodically and,
as adjustments become necessary, they are reported in earnings in the periods in
which they become known. The current economic environment has increased the
degree of uncertainty in these estimates and assumptions.
 
 Joint Venture
Operations
 
 In
instances where the Company’s oil and gas activities are conducted jointly with
others, the Company’s accounts reflect only its proportionate interest in such
activities.
 
 Cash and Cash
Equivalents
 
 Cash
consists of balances with financial institutions.
 
 Oil and Gas
Properties
 
 Under the
full cost method of accounting for oil and gas operations, all costs associated
with the exploration for and development of oil and gas reserves are capitalized
on a country-by-country basis. Such costs include land acquisition costs,
geological and geophysical expenses, carrying charges on non-producing
properties, costs of drilling both productive and non-productive wells,
production equipment and overhead charges directly related to acquisition,
exploration and development activities. Proceeds from the sale of oil and gas
properties are applied against capitalized costs with no gain or loss
recognized, unless such a sale would significantly alter the rate of depletion
and depreciation in a particular country, in which case a gain or loss on
disposal is recorded.
 
 Capitalized
costs within each country are depleted and depreciated on the unit-of-production
method based on the estimated gross proved reserves as determined by independent
petroleum engineers. Oil and gas reserves and production are converted into
equivalent units on the basis of 6,000 cubic feet of natural gas to one barrel
of oil. Depletion and depreciation is calculated using the capitalized costs,
including estimated asset retirement costs, plus the estimated future costs to
be incurred in developing proved reserves, net of estimated salvage
value.
  16
 
 An
impairment loss is recognized in net earnings if the carrying amount of a cost
center exceeds the “cost center ceiling”. The carrying amount of the cost center
includes the capitalized costs of proved oil and natural gas properties, net of
accumulated depletion and deferred income taxes and the cost center ceiling is
the present value of the estimated future net cash flows from proved oil and
natural gas reserves discounted at ten percent (net of related tax effects) plus
the lower of cost or fair value of unproved properties included in the costs
being amortized (and/or the costs of unproved properties that have been subject
to a separate impairment test and contain no probable reserves).
 
 Costs of
acquiring and evaluating unproved properties and major development projects are
initially excluded from the depletion and depreciation calculation until it is
determined whether or not proved reserves can be assigned to such properties.
Costs of unproved properties and major development projects are transferred to
depletable costs based on the percentage of reserves assigned to each project
over the expected total reserves when the project was initiated. These costs are
assessed periodically to ascertain whether impairment has occurred.
  Property and
Equipment
 
 Property
and equipment is recorded at cost. Depreciation of assets is provided by use of
a declining balance method over the estimated useful lives of the related
assets. Expenditures for replacements, renewals, and betterments are
capitalized. Maintenance and repairs are charged to operations as
incurred.
 
 Asset Retirement
Obligations
 
 The
Company recognizes a liability for asset retirement obligations in the period in
which they are incurred and in which a reasonable estimate of such costs can be
made. Asset retirement obligations include those legal obligations where the
Company will be required to retire tangible long-lived assets such as producing
well sites. The asset retirement obligation is measured at fair value and
recorded as a liability and capitalized as part of the cost of the related
long-lived asset as an asset retirement cost. The asset retirement obligation
accretes until the time the asset retirement obligation is expected to settle
while the asset retirement costs included in oil and gas properties are
amortized using the unit-of-production method.
 
 Amortization
of asset retirement costs and accretion of the asset retirement obligation are
included in depletion, depreciation and accretion. Actual asset retirement costs
are recorded against the obligation when incurred. Any difference between the
recorded asset retirement obligations and the actual retirement costs incurred
is recorded in depletion, depreciation and accretion.
  17
 
 Environmental
 
 Oil and
gas activities are subject to extensive federal, provincial, state and local
environmental laws and regulations. These laws, which are constantly changing,
regulate the discharge of materials into the environment and may require the
Company to remove or mitigate the environmental effects of the disposal or
release of petroleum or chemical substances at various sites.
 
 Environmental
expenditures are expensed or capitalized depending on their future economic
benefit. Expenditures that relate to an existing condition caused by past
operations and that have no future economic benefits are expensed. Liabilities
for expenditures of a non-capital nature are recorded when environmental
assessment and/or remediation is probable, and the costs can be reasonably
estimated. To date, the Company has not recognized any environmental obligations
as production has been insignificant and we have not actively produced since
October, 2006.
  Income
Taxes
 
 The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes”. Under the asset and liability method of SFAS No. 109 deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that includes
the enactment date. In addition, a valuation allowance is established to reduce
any deferred tax asset for which it is determined that it is more likely than
not that some portion of the deferred tax asset will not be
realized.
 
 Per
Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48),
“Accounting for Uncertainty in Income Taxes”, under the asset and liability
method, it is the Company’s policy to provide for uncertain tax positions and
the related interest and penalties based upon management’s assessment of whether
a tax benefit is more likely than not to be sustained upon examination by tax
authorities. At June 30, 2009, the Company believes it has appropriately
accounted for any unrecognized tax benefits. To the extent the Company prevails
in matters for which a liability for an unrecognized benefit is established or
is required to pay amounts in excess of the liability, the Company’s effective
tax rate in a given financial statement period may be affected. Interest and
penalties associated with the Company’s tax positions are recorded as Interest
Expense.
 
 Flow-through
Shares
 
 The
Company finances a portion of its Canadian exploration programs with
flow-through common shares issued pursuant to certain provisions of the Income
Tax Act (Canada) (the “Act”). Under the Act, where the proceeds are used for
eligible expenditures, the related income tax deductions may be renounced to
subscribers. Accordingly, the tax credits associated with the renunciation of
such expenditures are recorded as an increase to deferred income tax
liabilities. Any premium received from subscribers on the sale of such
flow-through common shares is recorded initially as a current liability and then
discharged and recognized as a reduction of deferred income taxes when the
flow-through eligible expenditures relating to the flow-through premium are
incurred by the Company.
  18
 
 Stock-Based
Compensation
 
 The
Company records compensation expense in the consolidated financial statements
for share based payments using the fair value method pursuant to Financial
Accounting Standards Board Statement (FASB) No. 123R “Accounting for Stock-Based
Compensation”. The fair value of share-based compensation to employees and other
personnel will be determined using an option pricing model at the time of grant.
Fair value for common shares issued for goods or services rendered by
non-employees are measured based on the fair value of the goods or services
received. Stock-based compensation expense is included in general and
administrative expense with a corresponding increase to Additional Paid in
Capital. Upon the exercise of the stock options, consideration paid together
with the previously recognized Additional Paid in Capital is recorded as an
increase in share capital.
 
 Foreign Currency
Translation
 
 The
functional currency for the Company’s foreign operations is the Canadian dollar.
The translation from the applicable foreign currencies to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date, while income, expenses and cash flows are translated at
the average exchange rates for the period. The resulting translation adjustments
are recorded as a component of other comprehensive income. Gains or losses
resulting from foreign currency transactions are included in other
income/expenses.
  Revenue
Recognition
  Revenues
from the sale of petroleum and natural gas are recorded when title passes from
the Company to its petroleum and/or natural gas purchaser and collectability is
reasonably assured. The Company will begin recording revenue once it is
determined there are proved reserves.
 
 Loss Per Common
Share
 
 Basic
earnings/loss per common share is computed by dividing net earnings/loss by the
weighted average number of common shares outstanding for the period. Diluted
earnings/loss per common share is computed after giving effect to all dilutive
potential common shares that were outstanding during the period. Dilutive
potential common shares consist of incremental shares issuable upon exercise of
stock options and warrants, contingent stock, conversion of debentures and
preferred stock outstanding. The dilutive effect of potential common shares is
not considered in the EPS calculations for these periods if the impact would
have been anti-dilutive.
  19
 
 4.  RECENT
ACCOUNTING PRONOUNCEMENTS
 
 In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB No. 51” (SFAS 160). This
statement requires the recognition of a  noncontrolling interest
(minority interest) as equity in the consolidated financial statements and
separate from the parent’s equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the income statement. Changes in a parent’s ownership interest that result in
deconsolidation of a subsidiary will result in the
 recognition
of a gain or loss in net income when the subsidiary is deconsolidated. SFAS 160
also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interests. For the Company, SFAS No. 160 was
effective January 1, 2009. The Company has adopted the presentation and
disclosure requirements as recommended.
 
 In
September 2008, the EITF reached a consensus for exposure on Issue No. 08-6,
“Equity Method Investment Accounting Considerations”. This issue addresses the
accounting for equity method investments as a result of the accounting changes
prescribed by SFAS 141(R) and SFAS 160. The issue includes clarification on the
following: (a) transaction costs should be included in the initial carrying
value of the equity method investment, (b) an impairment assessment of an
underlying indefinite-life intangible asset of an equity method investment need
only be performed as part of any other-than-temporary impairment evaluation of
the equity method investment as a whole and does not need to be performed
annually, (c) the equity method investee’s issuance of shares should be
accounted for as the sale of a proportionate share of the investment, which may
result in a gain or loss in income, and (d) a gain or loss should not be
recognized when changing the method of accounting for an investment from the
equity method to the cost method. For the Company, this issue was effective
January 1, 2009. The impact of this issue did not have a material effect on our
consolidated financial statements.
 
 In May
2009, the FASB issued SFAS 165, Subsequent Events. This
standard establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before financial statements
are issued or available to be issued. Specifically, this standard codifies in
authoritative GAAP standards the subsequent event guidance that was previously
located in auditing standards. SFAS 165 is effective for fiscal years and
interim periods ended after June 15, 2009 and is applied prospectively. We have
adopted SFAS 165 in this fiscal quarter ending June 30, 2009. The adoption of
SFAS 165 did not have a material impact on our financial position, results of
operation or cash flows.
  20
 
 The
following new accounting standards have been issued, but have not yet been
adopted by the Company:
 
 On
December 31, 2008, the SEC adopted a final rule that amends its oil and gas
reporting requirements. The revised rules change the way oil and gas companies
report their reserves in the financial statements. The rules are intended to
reflect changes in the oil and gas industry since the original disclosures were
adopted in 1978. Definitions were updated to be consistent with Petroleum
Resource Management System (PRMS). Other key revisions include a change in
pricing used to prepare reserve estimates, the inclusion of non-traditional
resources in reserves, the allowance for use of new technologies in determining
reserves, optional disclosure of probable and possible reserves and significant
new disclosures. The revised rules will be effective for our annual report on
Form 10-K for the fiscal year ending December 31, 2009. The SEC is precluding
application of the new rules in quarterly reports prior to the first annual
report in which the revised disclosures are required and early adoption is not
permitted. We are currently evaluating the effect the new rules will have on our
financial reporting and anticipate that the following rule changes could have a
significant impact on our results of operations as follows:
 
 •The price used in
calculating reserves will change from a single-day closing price measured on the
last day of the Company’s fiscal year to a 12-month average price, and will
affect our depletion and ceiling test calculations.
 
 •Several reserve definitions
have changed that could revise the types of reserves that will be included in
our year-end reserve report.
 
 •Many of our financial
reporting disclosures could change as a result of the new rules.
 
 In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles – a replacement of
FASB Statement No. 162” (“SFAS No. 168”), to establish the codification as the
source of authoritative accounting principles in the preparation of financial
statements in conformity with GAAP. All guidance contained in the codification
carries an equal level of authority. SFAS No. 168 is effective for financial
statements issued for interim and annual periods ending after September 15, 2009
and will not have an effect on the Company’s consolidated financial
statements.
 
 In June
2009, the FASB issued SFAS 167, Amendments to FASB Interpretation
No. 46(R). This standard changes the consolidation analysis for variable
interest entities. SFAS 167 is effective for fiscal years ending after November
15, 2009. We are currently assessing the impact, if any, that the adoption of
SFAS 167 will have on our financial position, results of operations or cash
flows.
  21
 
 5.  ACCOUNTS
RECEIVABLE
 
 Accounts
receivable consist of the following:
 June30, 2009
                          
                          
                          December31, 2008Non-operating
      Partner joint venture accounts
                          
                          $
                          3,629
                          
                          
                          $
                          1,193Government
      of Canada Goods and Services Tax Claims
                          
                          
                          13,801
                          
                          
                          
                          16,733Administrative
      Recoveries Receivable
                          
                          
                          86,481
                          
                          
                          
                          46,399$
                          103,911
                          
                          
                          $
                          64,325
 
 
 6.  OTHER
ASSETS
 
 Other
assets represent long term deposits required by regulatory authorities for
environmental obligations relating to well abandonment and site restoration
activities.
 
 June
      30, 2009
                                
                                
                                December
      31, 2008Alberta
      Energy and Utility Board Drilling Deposit
                                
                                $
                                77,421
                                
                                
                                $
                                73,507British
      Columbia Oil and Gas Commission Deposit
                                
                                
                                227,775
                                
                                
                                
                                217,396$
                                305,196
                                
                                
                                $
                                290,903
   7.
CAPITAL ASSETS
 Cost
                                                      
                                                      
                                                      Accumulated
                                                        Depreciation
                                                        and
      Depletion
                                                      
                                                      
                                                      Net
      Book Value
                                                        June
      30, 2009Oil
      and Gas Properties:Canada
                                                      
                                                      $
                                                      29,735,083
                                                      
                                                      
                                                      $
                                                      15,771,215
                                                      
                                                      
                                                      $
                                                      13,963,868United
      States
                                                      
                                                      
                                                      11,776,186
                                                      
                                                      
                                                      
                                                      498,867
                                                      
                                                      
                                                      
                                                      11,277,319Sub-total
                                                      
                                                      
                                                      41,511,269
                                                      
                                                      
                                                      
                                                      16,270,082
                                                      
                                                      
                                                      
                                                      25,241,187Furniture
      and Fixtures
                                                      
                                                      
                                                      152,238
                                                      
                                                      
                                                      
                                                      84,155
                                                      
                                                      
                                                      
                                                      68,083Total
                                                      
                                                      $
                                                      41,663,507
                                                      
                                                      
                                                      $
                                                      16,354,237
                                                      
                                                      
                                                      $
                                                      25,309,270Cost
                                                      
                                                      
                                                      Accumulated
                                                        Depreciation
                                                        and
      Depletion
                                                      
                                                      
                                                      Net
      Book Value
                                                        December
      31, 2008Oil
      and gas Properties:Canada
                                                      
                                                      $
                                                      27,244,206
                                                      
                                                      
                                                      $
                                                      1,935,428
                                                      
                                                      
                                                      $
                                                      25,308,778United
      States
                                                      
                                                      
                                                      11,749,456
                                                      
                                                      
                                                      
                                                      498,867
                                                      
                                                      
                                                      
                                                      11,250,589Sub-total
                                                      
                                                      
                                                      38,993,662
                                                      
                                                      
                                                      
                                                      2,434,295
                                                      
                                                      
                                                      
                                                      36,559,367Furniture
      and Fixtures
                                                      
                                                      
                                                      148,025
                                                      
                                                      
                                                      
                                                      72,460
                                                      
                                                      
                                                      
                                                      75,565Total
                                                      
                                                      $
                                                      39,141,687
                                                      
                                                      
                                                      $
                                                      2,506,755
                                                      
                                                      
                                                      $
                                                      36,634,932
   22
 
 During
the six months ended June 30, 2009, the Company has capitalized $92,518 (June
30, 2008 - $ 116,214) of general and administrative personnel costs attributable
to acquisition, exploration and development activities.
  Unproved
Properties
 
 Included
in oil and gas properties are the following costs related to Canadian and United
States unproved properties, valued at cost, that have been excluded from costs
subject to depletion.
 
 June
      30, 2009
                                      
                                      
                                      December
      31, 2008CanadaLand
      acquisition and retention
                                      
                                      $
                                      1,345,155
                                      
                                      
                                      $
                                      16,046,580Geological
      and geophysical costs
                                      
                                      
                                      10,580,753
                                      
                                      
                                      
                                      10,580,753Exploratory
      drilling
                                      
                                      
                                      2,294,163
                                      
                                      
                                      
                                      2,906,031Tangible
      equipment and facilities
                                      
                                      
                                      219,914
                                      
                                      
                                      
                                      219,914Other
                                      
                                      
                                      32,507
                                      
                                      
                                      
                                      34,784Currency
      revaluation
                                      
                                      
                                      (508,624
                                      )
                                      
                                      
                                      (4,479,284
                                      )$
                                      13,963,868
                                      
                                      
                                      $
                                      25,308,778United
      StatesLand
      acquisition and retention
                                      
                                      $
                                      8,168,134
                                      
                                      
                                      $
                                      8,158,899Geological
      and geophysical costs
                                      
                                      
                                      941,836
                                      
                                      
                                      
                                      941,836Exploratory
      drilling
                                      
                                      
                                      1,991,841
                                      
                                      
                                      
                                      1,974,346Tangible
      equipment and facilities
                                      
                                      
                                      95,699
                                      
                                      
                                      
                                      95,699Other
                                      
                                      
                                      79,809
                                      
                                      
                                      
                                      79,809$
                                      11,277,319
                                      
                                      
                                      $
                                      11,250,589$
                                      25,241,187
                                      
                                      
                                      $
                                      36,559,367
 
  23
 
 In
Canada, a stimulation and horizontal drilling program is planned for our British
Columbia property during the next year. In the United States, an initial seismic
and drilling program has been conducted on our New Mexico property with
additional drilling to follow. These planned activities, when completed, will
enable the Company to evaluate the economic viability of these
properties.
 
 Ceiling
Test
 
 The
Company has performed ceiling tests for its unproved properties in its Canadian
and United States geographical cost centers as at June 30, 2009.  No
impairment existed in the United States cost center as at that date. It has been
determined that an allowance for impairment is required for its Canadian cost
center as at June 30, 2009 with respect to the Company's Little Chicago
Exploration License 413 in the N.W.T. of Canada. Due to poor current economic
factors regarding exploration and development in that part of Canada, the
Company has made a decision not to extend its current exploration license which
is due to expire on September 17, 2009. Consequently an allowance for impairment
amounting to $16,035,774 has been recorded as a ceiling test write-down in the
second quarter of 2009 relating to the Company's cumulative capitalized land
costs for the EL 413 property until the license officially expires and the
Company determines if any of its partners will continue the project prior to the
expiry of the license.
 
 As at
December 31, 2008, the carrying value of the Company’s unproved properties in
its Canadian and United States cost centers were assessed by management and
costs attributable to certain unproved properties were determined to be
unsupportable. Consequently, ceiling test impairment write-down as of December
31, 2008 of $284,391 and $498,867 for the Canadian and U.S cost centers,
respectively, were recorded and included in depletion, depreciation and
accretion for 2008.
 
 
 8. NOTE
PAYABLE TO RELATED PARTY
 
 On
November 24, 2008 the Company borrowed Cdn. $40,000 from Sicamous Oil & Gas
Consultants Ltd., a company controlled by William S. Tighe, CEO, President and
COO of the Company, under the terms of a demand note bearing interest at the
Royal Bank of Canada prime rate plus 1% per annum. Following is a summary of
transactions regarding this related party indebtedness:
 
 Advance
      received November, 2008 (Cdn. $40,000)
                      
                      $
                      37,915Currency
      revaluation adjustment December 31, 2008
                      
                      
                      5,074Balance
      December 31, 2008 (Cdn $ 40,000)
                      
                      
                      32,841Repayment
      January, 2009 (Cdn. $20,000)
                      
                      
                      (15,857
                      )Advance
      March, 2009 (Cdn. $3,000)
                      
                      
                      2,378Repayment
      June, 2009 (Cdn. $23,000)
                      
                      
                      (18,235
                      )Balance
      June 30, 2009
                      
                      $
      Nil
  24
 
 9.
ADVANCES
 
 On June
17, 2009, the Company announced that Cougar has concluded strategic long term
financing arrangements with a Swiss Private Equity Fund  ("the Fund")
focused on the Energy Sector  to develop its CREEnergy Joint Venture and
other properties located in Western Canada. Key components of the Cougar
financing package include:
 
 1.
      Cdn. $1,500,000 in equity financing via a private placement of Cougar
      common shares at a price of $1.30 per common
  share;
 
 2.
      Arrangement by the fund of a non-dilutive Cdn. $5,000,000 development
      debt  financing;
 
 3.
      A Cdn. $750,000 payment by the Fund to Cougar to acquire the heavy
      oilrights on an equal basis with Cougar  plus  a 10% working
      interest in the conventional oil and gas opportunities when Cougar
      completes the nomination and leasing of the CREEnergy properties. 
      The Fund will be responsible for its share of all exploration and
      development costs following
closing.
 
  Kodiak
currently owns 94% of Cougar and following  the above
financing,  if fully
drawn, Kodiak will retain 81% of Cougar.
 
 During
the six months ended June 30, 2009, the Company received $472,890 (Cdn.
$550,000) from the Fund as advances toward their obligations under these
arrangements. (See Note 21).
 
 
 10.  LONG
TERM LIABILITIES
 
 As at
June 30, 2009, the Company held $41,136 (December 31, 2008 - $39,262) in funds
advanced by partners for their share of a drilling deposit required to be lodged
by the Company with the British Columbia Oil and Gas Commission (See Note 6) as
security for future well abandonment and site restoration
activities.
 
 
 11. ASSET
RETIREMENT OBLIGATIONS
 
 Changes
in the carrying amounts of the asset retirement obligations associated with the
Company’s oil and natural gas properties are as follows:
 
 Asset
      Retirement Obligations, December 31, 2008
                      
                      $
                      199,574Currency
      Translation Adjustment
                      
                      
                      5,388Obligations
      settled
                      
                      
                      (2,372
                      )Accretion
                      
                      
                      6,505Asset
      retirement obligations, June 30, 2009
                      
                      $
                      209,095
  25
 
 At June
30, 2009, the estimated total undiscounted amount required to settle the asset
retirement obligations was $ 406,077 (December 31, 2008 - $302,273). These
obligations will be settled at the end of the useful lives of the underlying
assets, which currently extends up to 8 years into the future. This amount has
been discounted using a credit adjusted risk-free interest rate of 7.5% and a
rate of inflation of 2.5%.
 
 
 12.
DEFERRED INCOME TAXES
  At June
30, 2009, the Company's deferred tax asset is attributable to its net operating
loss carry forward of approximately $3,117,000 (December 31, 2008 - $2,802,000),
which will expire if not utilized in the years 2024 to 2029. As reflected below,
this benefit has been fully offset by a valuation allowance based on
management's determination that it is not more likely than not that some or all
of this benefit will be realized.
  For the
six month periods ended June 30, 2009, June 30, 2008 and for the cumulative
period April 7, 2004 (Date of Inception) to June 30, 2009, a reconciliation of
income tax benefit at the U.S. federal statutory rate to income tax benefit at
the Company's effective tax rates is as follows:
  2009
                            
                            
                            2008
                            
                            
                            CumulativeIncome
      tax benefit at statutory rate
                            
                            $
                            (6,393,000
                            )
                            
                            $
                            (235,000
                            )
                            
                            $
                            10,299,000Permanent
      Differences
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (414,000
                            )State
      tax benefit, net of federal taxes
                            
                            
                            -
                            
                            
                            
                            (17,000
                            )
                            
                            
                            60,000Foreign
      taxes, net of federal benefit
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (2,532,000
                            )Revision
      to tax account estimates
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (177,000
                            )Other
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (2,000
                            )Change
      in valuation allowance
                            
                            
                            (6,393,000
                            )
                            
                            
                            252,000
                            
                            
                            
                            (7,234,000
                            )Deferred
      tax asset before the following
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Deferred
      tax credit arising from flow-through share premiums
                            
                            
                            -
                            
                            
                            
                            (950,000
                            )
                            
                            
                            (1,125,835
                            )Deferred
      tax benefit at effective rate
                            
                            $
                            -
                            
                            
                            $
                            (950,000
                            )
                            
                            $
                            (1,125,835
                            )
  26
    2009
                                        
                                        
                                        2008Deferred
      tax assetsCapital
      assets
                                        
                                        $
                                        4,221,000
                                        
                                        
                                        $
                                        -Net operating loss carryover
                                        
                                        
                                        3,117,000
                                        
                                        
                                        
                                        2,802,000Other
                                        
                                        
                                        79,000
                                        
                                        
                                        
                                        75,000Total deferred tax asset
                                        
                                        
                                        7,417,000
                                        
                                        
                                        
                                        2,877,000Deferred
      tax liabilitiesExcess of U.S. tax deductions over book amounts written
off
                                        
                                        
                                        -
                                        
                                        
                                        
                                        345,000Net
      deferred tax asset before valuation allowance
                                        
                                        
                                        7,417,000
                                        
                                        
                                        
                                        2,532,000Less
      valuation allowance for net deferred tax asset
                                        
                                        
                                        (7,417,000
                                        )
                                        
                                        
                                        (2,532,000
                                        )Net
      deferred tax asset
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
  The
change in the valuation allowance of $4,885,000 is net of $1,509,000 relating to
currency revaluation adjustments that are included in the Comprehensive Loss in
Shareholders' Equity.
 
 
 13.  SHARE
CAPITAL AND ADDITIONAL PAID IN CAPITAL
 
 Authorized:
 June 30,
2009 and December 31, 2008 – 300,000,000 common shares at $0.001 par value and
10,000,000 preferred shares with no par value.
 
 The
following share capital transactions occurred during the periods:
 
 Issued
                          
                          Number
                          
                          
                          Par
      Value
                          
                          
                          Additional
      Paid in CapitalBalance
      December 31, 2008
                          
                          
                          110,023,998
                          
                          
                          $
                          110,024
                          
                          
                          $
                          49,296,114Share
      Issue Costs (a)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (30,641
                          )Stock-based
      compensation (Note 14)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          294,719Balance
      June 30, 2008
                          
                          
                          110,023,998
                          
                          
                          $
                          110,024
                          
                          
                          $
                          49,560,192
 
 (a)
                      During
      the six months ended June 30, 2009, share issue costs were incurred in
      connection with the issue of shares by the Company’s controlled
      subsidiary, Cougar Energy,
Inc.
 
 The
following common shares were reserved for issuance:
 Exercise
                        Price
      ($)
                      
                      
                      Equivalent
                        Shares
                        Outstanding
                      
                      
                      Weighted
                        Average
                        Years
      to
                        Expiry
                      
                      
                      Option
                        Shares
                        VestedStock
      Options (see below)
                      
                      $
                      0.28-$2.74
                      
                      
                      
                      5,960,000
                      
                      
                      
                      4.31
                      
                      
                      
                      995,004Warrants
      (see below)
                      
                      $
                      3.50
                      
                      
                      
                      2,430,000
                      
                      
                      
                      1.44
                      
                      
                      
                      -Total Shares Reserved
                      
                      
                      
                      
                      
                      
                      8,390,000
                      
                      
                      
                      
                      
                      
                      
                      -
 
  27
 
 Stock Option
Plan
 
 The
Company has a stock option plan under which it may grant options to its
directors, officers, employees and consultants for up to a maximum of 10% of its
issued and outstanding common shares at market price at the date of grant for up
to a maximum term of five years. Options are exercisable equally over the first
three years of the term of the option.
 
 A summary
of options granted and outstanding under the plan is as follows:
 Expiry
      Date
                                
                                Number
      of
                                  Option
                                  Shares
                                
                                
                                Weighted
                                  Average
                                  Exercise
                                  Price
                                
                                
                                Total
                                  ValueGranted
      to five directors and one officer Oct. 23, 2006
                                Oct.
      23/11
                                
                                
                                1,280,000
                                
                                
                                $
                                1.50
                                
                                
                                $
                                1,920,000Cancellation
      of one officer’s option
                                
                                
                                
                                (280,000
                                )
                                
                                $
                                1.50
                                
                                
                                
                                (420,000
                                )Granted
      to an employee Dec. 1, 2006
                                Dec.
      1/11
                                
                                
                                125,000
                                
                                
                                $
                                1.28
                                
                                
                                
                                160,000Granted
      to an officer Jan. 3, 2007
                                Jan.
      3/12
                                
                                
                                280,000
                                
                                
                                $
                                1.29
                                
                                
                                
                                361,200Granted
      to a consultant Dec. 1, 2007
                                Dec.
      1/12
                                
                                
                                100,000
                                
                                
                                $
                                2.58
                                
                                
                                
                                258,000Granted
      to an employee Mar. 24, 2008
                                Mar.
      24/13
                                
                                
                                25,000
                                
                                
                                $
                                1.86
                                
                                
                                
                                46,500Granted
      to two consultants and two employees Oct. 16, 2008
                                
                                
                                
                                100,000
                                
                                
                                $
                                0.69
                                
                                
                                
                                69,000Granted
      to three directors, two directors/officers, two officers, two employees
      and two consultants June 24, 2009
                                Mar
      24/14
                                
                                
                                4,330,000
                                
                                
                                $
                                0.28
                                
                                
                                
                                1,212,400Balance
      June 30, 2009
                                
                                
                                
                                5,960,000
                                
                                
                                $
                                0.61
                                
                                
                                $
                                3,607,100
  Warrants
 
 During
2006, 2007 and 2008, the Company, as part of certain private placement
financings, issued warrants that are exercisable in common shares of the
Company. A summary of such outstanding warrants follows:
 Exercise
                                            Price
                                          
                                          Expiry
      Date
                                          
                                          Equivalent
                                            Shares
                                            Outstanding
                                          
                                          
                                          Weighted
                                            Average
                                            Years
      to
                                            ExpiryIssued
      June 30, 2006
                                          
                                          $
                                          3.50
                                          
                                          Jun.
      30/11
                                          
                                          
                                          1,130,000
                                          
                                          
                                          
                                          2.00Issued
      June 18, 2008
                                          
                                          $
                                          3.50
                                          
                                          Jun.
      18/10
                                          
                                          
                                          1,300,000
                                          
                                          
                                          
                                          0.95Balance
      June 30, 2009
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          2,430,000
                                          
                                          
                                          
                                          1.44
  During
the six months ended June 30, 2009, warrants exercisable into 3,693,014 common
shares of the Company expired unexercised.
  28
  Minority
Interest
  Following
is a summary of the interest of the minority shareholders of Cougar Energy,
Inc., a controlled subsidiary of the Company and in which the Company holds a
93.6% interest as at June 30, 2009.
 
 Private
      placement investments made by minority interest shareholders of Cougar
      during the six  months ended June 30, 2009
                      
                      $
                      416,339Minority
      interest shareholders' share of loss for six months ended June 30,
      2009
                      
                      
                      (15,842
                      )Due
      to minority interests as at June 30, 2009
                      
                      $
                      400,497
 
 
 14. STOCK-BASED
COMPENSATION
 
 In
accordance with FASB No. 123R, the Company uses the Black-Scholes option pricing
method to determine the fair value of each stock option granted and the amount
is recognized as additional expense in the statement of earnings over the
vesting period of the option. The fair value of each option granted has been
estimated using the following average assumptions:
 
 2009
                      
                      2008Risk
      free interest rate
                      1.89-2.57%
                      
                      2.96-3.05%Expected
      holding period
                      3-5
      years
                      
                      3
      yearsShare
      price volatility
                      100%
                      
                      75%Estimated
      annual common share dividend
                      -
                      
                      -
 
 For
options granted during the six months ended June 30, 2009, the fair value
totaled $959,807 (December 31, 2008 - $ 60,600). The amount of stock-based
compensation expense recorded during the six months ended June 30, 2009 is
estimated to be $294,719 (2008 – $355,605). The value of unvested options
expiring during the period was $44,636 (December 31, 2008 - $349,127) leaving a
balance of the fair value of the options to be expensed in future periods of
$1,194,655 (December 31, 2008 - $574,203) over a vesting period of three
years.
  
  29
 
 15.  NET
INCOME (LOSS) PER SHARE
 
 A
reconciliation of the numerator and denominator of basic and diluted loss per
share is provided as follows:
 
 Three
      Months Ended
                                            June 30,
      2009
                                          
                                          
                                          Three
      Months Ended
                                            June
      30, 2008
                                            (Restated
      – Note 2)
                                          
                                          
                                          Six
      Months Ended
                                            June 30,
      2009
                                          
                                          
                                          Six
      Months Ended
                                            June
      30, 2008
                                            (Restated
      – Note 2)Numerator:Numerator for basic and diluted loss per shareNet
      Loss
                                          
                                          $
                                          (16,379,553
                                          )
                                          
                                          $
                                          (549,187
                                          )
                                          
                                          $
                                          (16,880,088
                                          )
                                          
                                          $
                                          (90,344
                                          )Denominator:Denominator
      for basic loss per shareWeighted
      average shares outstanding
                                          
                                          
                                          110,023,998
                                          
                                          
                                          
                                          106,856,707
                                          
                                          
                                          
                                          110,023,998
                                          
                                          
                                          
                                          106,774,602In
      the money stock options
                                          
                                          
                                          -
                                          
                                          
                                          
                                          694,273
                                          
                                          
                                          
                                          292
                                          
                                          
                                          
                                          632,344In
      the money warrants
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,263,272
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,136,686Contingent
      Thunder shares
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,500,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,500,000Denominator
      for diluted loss per shareWeighted
      average shares outstanding
                                          
                                          
                                          110,023,998
                                          
                                          
                                          
                                          113,314,252
                                          
                                          
                                          
                                          110,024,290
                                          
                                          
                                          
                                          113,043,633Basic
      and diluted loss per share
                                          
                                          $
                                          (0.15
                                          )
                                          
                                          $
                                          0.00
                                          
                                          
                                          $
                                          (0.15
                                          )
                                          
                                          $
                                          0.00
 
 The
contingent shares issuable related to the 2007 property acquisition described in
note 16  have been reduced to nil due to the Company’s decision to let
the NWT EL 413 Exploration License expire on September 17,
2009.
  30
 
 16.
COMMITMENTS AND CONTINGENCIES
 
 Thunder Acquisition
Commitments
 
 On
September 28, 2007 the Company purchased from Thunder River Energy, Inc.
(“Thunder”) certain properties in Canada (Exploration License 413 – “EL 413”)
and the United States in consideration for cash and common shares of the
Company. As part of the transaction, the Company committed to issue up to 11
million additional common shares of the Company upon the achievement of certain
milestones in connection with the acquired properties, including 6 million
shares to be issued as follows: 2 million shares upon completion of a 2007/08
seismic program for which such shares were issued in July, 2008; 1 million
shares upon the spudding of a shallow depth well (1,500 meters TD) by March 31,
2009; 1.5 million shares upon the spudding of a medium depth well (2,500 meters
TD) before license expiry in 2009 and 1.5 million shares upon conversion of any
part of EL 413 to a Significant Discovery Lease. A right to extend the license
term one year from September 17, 2009 upon the payment of license rentals was
obtained. Due to the decline in the economic prospects for the area due to
ongoing pipeline delays, commodity prices being significantly below levels
required to justify commercial development of proved reserves and the high cost
to extend the license term for one additional year with no further extension
possible under current licensing terms, the Company has decided not to renew the
license and let the current EL 413 expire on September 17, 2009. Consequently
the obligation to issue any additional contingent shares will be terminated
effective September 17, 2009.
 
 CREEnergy Alberta Lands
Commitment
 
 During
2008, the Company, on behalf of Cougar Energy, Inc., entered into an agreement
with CREEnergy Oil & Gas Inc., under the terms of which the Company
committed to exclusivity rights payments aggregating Cdn. $1 million of which
$725,000 has been paid as at June 30, 2009 (December 31, 2008 - $300,000) and
$275,000 subsequent to June 30, 2009.
 
 Vehicle Lease
Commitments
 
 As of
June 30, 2009 and December 31, 2008, the Company had the following vehicle lease
commitments as follows:
 June
      30,
                      
                      
                      December
      31,2009
                      
                      
                      2008Amounts
      payable in:2009
                      
                      $
                      13,666
                      
                      
                      $
                      26,0992010
                      
                      
                      24,983
                      
                      
                      
                      23,8562011
                      
                      
                      3,172
                      
                      
                      
                      3,172
  31
 
 17.  FINANCIAL
INSTRUMENTS
 
 The
Company, as part of its operations, carries a number of financial instruments.
It is management’s opinion that the Company is not exposed to significant
interest, credit or currency risks arising from these financial instruments
except as otherwise disclosed.
 
 The
Company’s financial instruments, including cash and short term deposits,
accounts receivable, accounts payable and accrued liabilities are carried at
values that approximate their fair values due to their relatively short maturity
periods.
 
 
 18.  RELATED
PARTY TRANSACTIONS
 
 For the
six months ended June 30, 2009, the Company paid $17,539 (2008 - $Nil) to
Sicamous Oil & Gas Consultants Ltd. (“Sicamous”), a company controlled by
William S. Tighe, CEO, President and COO of the Company for consulting services
rendered by him. Of this amount, $8,769 was payable as at June 30, 2009 (June
30, 2008 - $ Nil). These amounts were charged to General and Administrative
Expense.
 
 During
the six months ended June 30, 2009, the Company received loans from Sicamous
aggregating $36,066 (Cdn. $43,000) for which repayments were made Cdn. $17,831
(Cdn. $20,000) in  March and the balance of $18,235 (Cdn. $23,000) in
June. (See Note 8.)
 
 For the
six months ended June 30, 2009, the Company paid $24,107 (2008 – $59,685), to
Harbour Oilfield Consulting Ltd., a company owned by the Vice-President
Operations of the Company for consulting services rendered by him. Of this
amount, $6,910 (2008 - $ 26,555) was capitalized to Unproved Oil and Gas
Properties and $17,197 (2008 - $33,130) was charged to General and
Administrative Expense.
 
 For the
six months ended June 30, 2009, the Company paid $58,627 (2008 - $107,467) to
the Chief Financial Officer of the Company for services rendered by him. Of this
amount, $ 8,885 was payable as at June 30, 2009 (June 30, 2008 - $ Nil). These
amounts were charged to General and Administrative Expense.
  32
 
 As at
June 30, 2009 and December 31, 2008, the Company was indebted to Segment
Engineering Inc., a company controlled by Greg Juneau, a director of the Company
since December, 2008, in the amount of $53,630 (Cdn. $67,644) for rent and other
administrative services provided in 2008.
 
 These
related party transactions were in the normal course of business and agreed to
by the related parties and the Company based on negotiations and Board approval
and accordingly had been measured at the exchange amounts.
 
 As at
June 30, 2009 and December 31, 2008, no other amounts were owing to any related
parties.
 
 
 19.  SEGMENTED
INFORMATION
  The
Company’s geographical segmented information is as follows:
  Three Months Ended June 30,
      2009
                                                
                                                
                                                Six Months Ended June 30,
    2009U.
      S.
                                                
                                                
                                                Canada
                                                
                                                
                                                Total
                                                
                                                
                                                U.
      S.
                                                
                                                
                                                Canada
                                                
                                                
                                                TotalIncome
      during the Evaluation Period
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Net
      Loss
                                                
                                                
                                                4,629
                                                
                                                
                                                
                                                16,374,924
                                                
                                                
                                                
                                                16,379,553
                                                
                                                
                                                
                                                21,076
                                                
                                                
                                                
                                                16,859,012
                                                
                                                
                                                
                                                16,880,088Capital
      Assets
                                                
                                                
                                                11,277,319
                                                
                                                
                                                
                                                14,031,951
                                                
                                                
                                                
                                                25,309,270
                                                
                                                
                                                
                                                11,277,319
                                                
                                                
                                                
                                                14,031,951
                                                
                                                
                                                
                                                25,309,270Total
      Assets
                                                
                                                
                                                11,281,042
                                                
                                                
                                                
                                                14,576,735
                                                
                                                
                                                
                                                25,857,777
                                                
                                                
                                                
                                                11,281,042
                                                
                                                
                                                
                                                14,576,735
                                                
                                                
                                                
                                                25,857,777Capital
      Expenditures
                                                
                                                
                                                20,172
                                                
                                                
                                                
                                                464,449
                                                
                                                
                                                
                                                484,620
                                                
                                                
                                                
                                                26,730
                                                
                                                
                                                
                                                706,653
                                                
                                                
                                                
                                                733,383
 
 
 Three Months Ended June 30,
      2008
                    
                    
                    Six Months Ended June 30,
    2008U.
      S.
                    
                    
                    Canada
                    
                    
                    Total
                    
                    
                    U.
      S.
                    
                    
                    Canada
                    
                    
                    TotalIncome
      during the Evaluation Period
                    
                    $
                    -
                    
                    
                    
                    46
                    
                    
                    
                    46
                    
                    
                    $
                    -
                    
                    
                    
                    46
                    
                    
                    
                    46Net
      Income (Loss)
                    
                    
                    6,134
                    
                    
                    
                    (555,321
                    )
                    
                    
                    (549,187
                    )
                    
                    
                    20,840
                    
                    
                    
                    (111,184
                    )
                    
                    
                    (90,344
                    )Capital
      Assets
                    
                    
                    11,645,994
                    
                    
                    
                    25,501,513
                    
                    
                    
                    37,147,507
                    
                    
                    
                    11,645,994
                    
                    
                    
                    25,501,513
                    
                    
                    
                    37,147,507Total
      Assets
                    
                    
                    11,666,176
                    
                    
                    
                    28,047,992
                    
                    
                    
                    39,714,168
                    
                    
                    
                    11,666,176
                    
                    
                    
                    28,047,992
                    
                    
                    
                    39,714,168Capital
      Expenditures
                    
                    
                    1,435,783
                    
                    
                    
                    390,806
                    
                    
                    
                    1,826,589
                    
                    
                    
                    3,166,750
                    
                    
                    
                    6,370,425
                    
                    
                    
                    9,537,175
  33
 
 20.
CHANGES IN NON-CASH WORKING CAPITAL
  Three
      Months Ended
                          June
      30, 2009
                        
                        
                        Three
      Months Ended
                          June
      30, 2008
                          (Restated
      - Note 2)
                        
                        
                        Six
      Months Ended
                          June
      30, 2009
                        
                        
                        Six
      Months Ended
                          June
      30, 2008
                          (Restated
      - Note 2)
                        
                        
                        CumulativeSince
                          Inception
                          April
      7, 2004
                          to
      June 30, 2009Operating
      Activities:Accounts
      Receivable
                        
                        $
                        (26,269
                        )
                        
                        
                        (20,157
                        )
                        
                        
                        (33,275
                        )
                        
                        
                        628,762
                        
                        
                        
                        (96,407
                        )Prepaid
      Expenses and Deposits
                        
                        
                        11,923
                        
                        
                        
                        (5,396
                        )
                        
                        
                        17,819
                        
                        
                        
                        (15,853
                        )
                        
                        
                        (96,940
                        )Accounts
      Payable
                        
                        
                        (56,984
                        )
                        
                        
                        33,230
                        
                        
                        
                        251,686
                        
                        
                        
                        54,361
                        
                        
                        
                        524,448Accrued
      Liabilities
                        
                        
                        61,687
                        
                        
                        
                        5,196
                        
                        
                        
                        (42,798
                        )
                        
                        
                        (50,933
                        )
                        
                        
                        80,045Other
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        25,000Total
                        
                        $
                        (9,643
                        )
                        
                        
                        12,873
                        
                        
                        
                        193,432
                        
                        
                        
                        616,337
                        
                        
                        
                        436,146
 Investing
Activities:
 The total
changes in investing activities non-cash working capital accounts detailed below
pertains to capital asset additions and has been included in that caption in the
Statement of Cash Flow:
  Accounts
      Receivable
                          
                          $
                          (18
                          )
                          
                          
                          (779,282
                          )
                          
                          
                          (6,311
                          )
                          
                          
                          (594,127
                          )
                          
                          
                          (7,504
                          )Prepaid
      Expenses and Deposits
                          
                          
                          (3,214
                          )
                          
                          
                          (35,687
                          )
                          
                          
                          (1,870
                          )
                          
                          
                          (16,813
                          )
                          
                          
                          16,827Accounts
      Payable
                          
                          
                          362,291
                          
                          
                          
                          (401,830
                          )
                          
                          
                          343,269
                          
                          
                          
                          (421,083
                          )
                          
                          
                          1,014,047Accrued
      Liabilities
                          
                          
                          -
                          
                          
                          
                          (2,540,058
                          )
                          
                          
                          -
                          
                          
                          
                          (288,046
                          )
                          
                          
                          -Total
                          
                          $
                          359,059
                          
                          
                          
                          (3,756,857
                          )
                          
                          
                          335,088
                          
                          
                          
                          (1,320,069
                          )
                          
                          
                          1,023,370
 
  34
 
 Financing
Activities:
 The total
changes in financing activities non-cash working capital accounts detailed below
pertains to shares issued and issuable and has been included in that caption in
the Statement of Cash Flow:
 
 Accounts
      Receivable
                          
                          $
                          637
                          
                          
                          
                          (180,000
                          )
                          
                          
                          -
                          
                          
                          
                          (180,000
                          )
                          
                          
                          -Due
      to Related Parties
                          
                          
                          (18,235
                          )
                          
                          
                          -
                          
                          
                          
                          (32,841
                          )
                          
                          
                          -
                          
                          
                          
                          -Prepaid
      Expenses and Deposits
                          
                          
                          (1,651
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (10,000
                          )Accounts
      Payable
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (35,166
                          )
                          
                          
                          (113,468
                          )
                          
                          
                          5,885Flow
      Through Share Premium Liability
                          
                          
                          -
                          
                          
                          
                          (24,000
                          )
                          
                          
                          -
                          
                          
                          
                          28,835
                          
                          
                          
                          -Accrued
      Liabilities
                          
                          
                          (5,946
                          )
                          
                          
                          30,000
                          
                          
                          
                          -
                          
                          
                          
                          30,000
                          
                          
                          
                          -Total
                          
                          $
                          (25,195
                          )
                          
                          
                          (174,000
                          )
                          
                          
                          (68,007
                          )
                          
                          
                          (234,633
                          )
                          
                          
                          4,115
   21. SUBSEQUENT
EVENTS
  Expiry of N.W.T Exploration
License 413 ("EL 413"
 
 During
the quarter, the Company made the decision not to renew EL 413 upon its license
expiry date of September 17, 2009 and will be advising its partners and the
appropriate government agencies of that fact. As a result of this decision, an
allowance for impairment aggregating $16,035,774 was recorded in the second
quarter of 2009 relating to the previously capitalized land acquisition costs of
EL 413 included in Canadian Unproved Properties. (See note
7).
 
 CREEnergy
Project
 
 On July
14, 2009, the Company announced that Cougar has funded and completed the
requirements of the "exclusivity contract" of the CREEnergy Oil and Gas Inc.
agreement previously announced on December 1, 2008. Under the terms of the
agreement, Cougar has paid exclusivity fees aggregating Cdn. $1,000,000 of which
Cdn. $725,000 was paid as at June 30, 2009 and an additional Cdn. $275,000 since
that date. The agreement provides for an "exclusivity contract" with CREEnergy
for oil and gas properties for up to 15 townships or 345,000 gross acres of
mineral rights in north central Alberta, Canada. The initial leases, as
outlined in the agreement, are for mineral rights on a total of 46,000 gross
acres for a lease term of 10 years. As the project moves forward,
additional leases will be identified and added to the joint
venture.
  Cougar is
working with CREEnergy to identify, prioritize and nominate the first mineral
rights that will be leased, and finalizing the initial development plans for the
fall/winter of 2009, which will include the evaluation of 4 to 6 high priority
targets.  The development plans will include the areas to be leased from
CREEnergy and the additional mineral rights acquired in the farmin announced on
June 9, 2009.
  35
  Property
Acquisition
 
 On July
20, 2009, the Company announced that its majority controlled subsidiary, Cougar
Energy, Inc., has reached an agreement  in principle with a private company
to
 acquire
the wells, facilities and production with operations in and adjacent to the
CREEnergy project. A formal purchase and sale agreement is being finalized and
upon closing of that agreement, the acquisition will add 11 producing wells and
21 low cost workover
or recompletion candidates, essential water disposal and production facilities,
and associated pipelines. The existing wells and reserves are located in
the Trout field and have a reported cumulative production in excess of 6.6
million barrels of light sweet crude oil
from the Keg River and Granite Wash formations. Current gross production is
approximately 170 barrels of oil per day; a number the Company believes can be
significantly increased. These wells previously produced up to an estimated
total of 2,450 barrels of oil per day.
 
 Financing
Arrangements
 
 Subsequent
to June 30, 2009, Cougar has received an additional  Cdn $325,000 in
advances towards the financing arrangements described in Note 9.
 
 
 ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
 Forward Looking Statements
 
 From time to time, we or our
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in, but not limited to,
press releases, oral statements made with the approval of an authorized
executive officer or in various filings made by us with the Securities and
Exchange Commission. Words or phrases "will likely result", "are expected to",
"will continue", "is anticipated", "estimate", "project or projected", or
similar expressions are intended to identify "forward-looking statements". Such
statements are qualified in their entirety by reference to and are accompanied
by the above discussion of certain important factors that could cause actual
results to differ materially from such forward-looking
statements.
  36
 
 Management is currently unaware of any
trends or conditions other than those previously mentioned in this management's
discussion and analysis that could have a material adverse effect on the
Company's consolidated financial position, future results of operations, or
liquidity. However, investors should also be aware of factors that could have a
negative impact on the Company's prospects and the consistency of progress in
the areas of revenue generation, liquidity, and generation of capital resources.
These include: (i) variations in revenue, (ii) possible inability to attract
investors for its equity securities or otherwise raise adequate funds from any
source should the Company seek to do so, (iii) increased governmental
regulation, (iv) increased competition, (v) unfavorable outcomes to litigation
involving the Company or to which the Company may become a party in the future
and, (vi) a very competitive and rapidly changing operating environment. The
risks identified here are not all inclusive. New risk factors emerge from time
to time and it is not possible for management to predict all of such risk
factors, nor can it assess the impact of all such risk factors on the Company's
business or the extent to which any factor or combination of factors may cause
actual results to differ materially from those contained in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results.
 
 The financial information set forth in
the following discussion should be read in conjunction with management’s
discussion and analysis contained in our 2008 Annual Report on Form 10-K as well
as the consolidated financial statements and notes thereto included elsewhere
herein.
 
 Plan of Operation
 
 During thesix monthsendedJune30, 2009, the Company has focused its
efforts on financing opportunities and furthering its plans regarding its Lucy,
B.C. and Cree Energy rights inAlberta. After financing is in place, which is
expected to be during the second quarter of 2009, the Company plans to
accelerate the aggressive development of its asset base even further as well as
identify additional assets for addition to our overall land
base.
 
 The Company expects
to finance its future capital expenditure programs with combinations of debt,
farm-outs, equity financings and some
divestitures. The Company has no secured debt at this time. A description of theCompany’s recent and planned activities
for its core properties is included below.
 
 Kodiak Energy, Inc. is a petroleum and
natural gas exploration and development company whose primary objective is to
identify, acquire and develop working interests in undeveloped or underdeveloped
petroleum and natural gas prospects. We are focused on prospects located inCanadaand theUnited States. The prospects we hold are generally
under leases and include partial and full working interests. In all of our core
properties, Kodiak is the operator and majority interest owner. In two
properties, we have the option to perform certain exploratory drilling to earn
additional interests. The prospects are subject to varying royalties due to the
state, province or federal governments and, in some instances, to other royalty
owners in the prospect. None of our core properties are exposed to the recent
Alberta Royalty Review changes.
  37
 
 The Company plans to engage in seismic
data collection and well drilling programs on a number of prospects in which it
has an interest or right to acquire percentage interests over the next two
years. Drilling programs will be conducted where the seismic data supports the
effort and expense and further drilling will be based on the results of the
initial wells. A number of our prospects are located in the vicinity of
petroleum and natural gas infrastructure, thereby providing the opportunity to
tie-in to existing or planned pipelines. This will be important in lowering the
overall cost of development and marketing any natural resources located in a
prospect.
 
 The Company currently has no petroleum
or natural gas reserves or production. TheCompany will begin recording revenue when
production from proved reserves commences.
 
 Core Properties
 
 Canada
 
 Lucy –Northern
British Columbia
 
 The Corporation is the operator and 80%
working interest owner of a 1,920 acre lease located innortheasternBritish Columbia. The Corporation believes the lease is
situated on the southeast edge of theHornRiver Basinand the Muskwa Shale gas prospect.
Industry continues to show increased interest in this shale gas play with
several comparisons of the Muskwa Shale gas potential as an analogue of the
Barnett Shale gas potential.
 
 The Corporation has been involved in two
previous drilling operations on the lease. In the fourth quarter of 2006, Kodiak
farmed in as a non-operated partner, paying 10% to earn 7.5%, on a drilling
operation in the Lucy (Gunnell) area. This first drilling operation, designed to
target a Middle Devonian reef prospect, had several operational problems and was
unsuccessful.
 
 After performing an
internal review of seismic and drilling data, it was determined there was a
seismic anomaly on the southern half of the lease. This anomaly was identified
on several different seismic lines and a decision was made to drill a well on
that part of the lease to evaluate both the anomaly as the primary target and
the Muskwa Shale, seen in the first well but not evaluated by the operator at
that time.
 
 In the third quarter of 2007, the
Corporation served partners with an independent operations notice which resulted
in the Corporation increasing its working interest in the lease to 80%. In the
first quarter of 2008, a second drilling operation was completed and a vertical
well was cased. It was determined that the Middle Devonian seismic anomaly was
not a reef buildup and the wellbore was cased due to encountering significant
gas shows in the previously identified Muskwa Shale with a formation thickness
of approximately sixty meters.
  38
 
 The Corporation submitted an application
to the British Columbia Oil & Gas Commission (“OGC”) for an experimental
scheme to test the Muskwa Shale gas potential. On August 12, 2008, Kodiak
received the final approval of the Lucy experimental scheme application. The
Corporation has prepared a multi-phase work program designed to test the
deliverability of the Muskwa Shale gas formation using vertical and horizontal
drilling and completion techniques. Kodiak’s proposed work program would allow
for early production into a pipeline in order to monitor long-term
deliverability rates and pressures of horizontal and vertical test wells on the
periphery of theHornRiver Basin.
 
 These results would be some of the first
commercial production results for a Horn River Basin shale gas project and would
provide information that would help define the effective exploration area of the
Basin and assist in the validation of adjoining properties in a divestiture
process, should that occur.
 
 Kodiak contracted an industry-recognized
shale gas assessment laboratory to prepare and analyze the drill cuttings from
the 2008 well in order to evaluate the Muskwa Shale interval for gas potential.
The shale gas assessment is conducted by performing various tests on the rock
cuttings that were obtained while drilling the well in order to determine the
type, quality and amount of both adsorbed and free gas.
 
 The most important conclusion from the
drill cutting analysis is that the information received continues to support the
evaluation of Kodiak’s Muskwa (Evie) Shale gas prospect. The laboratory data is
consistent with other public industry and government data on the Muskwa Shale.
It should also be noted that the numbers obtained on the laboratory analysis of
drill cuttings may be conservative due to the nature of sampling drill cuttings
on a drilling rig. Another significant point is that all three wells on the
Kodiak lease, drilled deep enough to penetrate the Muskwa Shale, had elevated
gas detector readings while penetrating the shales.
 
 The prospect is
still in the early stages of delineation and no assurance can be given that its
exploitation will be successful. However, based on well cuttings and drilling
data, Kodiak’s internal technical analysis has estimated the volume of adsorbed
and free gas in the Muskwa (Evie) shales to have potential net reserves of 41
bcf per section or 123 bcf total. Based on estimated 25% recovery factor on the
three sections of land, we estimate a total of 30.75 bcf recoverable contingent
resources. In calculating this number, the Corporation used all of the
laboratory analysis findings and wellbore information obtained during the
drilling operation. For reference, this internally calculated volume is between
the “best” and “high” calculations listed in the Chapman report that only had
the TOC analysis and industry available data. Further appraisal work is required
before these estimates can be finalized and commerciality
assessed.
 
 The current intention is to perform the
following work commitments for the license (target dates are subject to change
as new information becomes available):
  39
 
 ·
              Second Quarter 2009 and Third
      Quarter 2009 - Perforate the Muskwa intervals, perform a vertical shale
      gas fracture treatment, test and evaluate pressures and production and, if
      economic, equip and tie in well to an existing pipeline approximately 1 Km
      from the wellhead.·
              First Quarter 2010 and Second
      Quarter 2010 – Drill and case a 1000 meter horizontal leg from an existing
      cased vertical well on the lease, perform a horizontal staged fracture
      treatment, test and evaluate pressures and production and, if economic,
      equip and tie in well to
pipeline.
 
 In April, 2009, Kodiak, through its
private subsidiary, Cougar, entered into a standard farmout and participation
agreement with one of its partners. The partner will provide 90% of the funding
for the first phase of the“Lucy”HornRiverwork program. Upon completion of the
funding, the partner will have earned an additional 30% working interest in the
wells and property. Cougar will maintain operator status and majority ownership
of the project with the management of Kodiak/Cougar overseeing the execution of
the work program. Upon fulfillment of the funding provisions of the farmout and
participation agreement, Cougar’s working interest in the“Lucy”HornRiver Basinproject will be 50%.
 
 As at the time of filing this Form 10-Q,
our partner has not completed its financing commitment and this farmout and
participation agreement will expire on August 15, 2009.
 
 CREEnergy
Lands,Alberta
 
 On November 28, 2008, Kodiak entered
into a binding letter agreement with CREEnergy Oil and Gas Inc., a company which
is the authorized agent of Peerless/Trout Lake First Nation and Alberta Cree
Nation, which are new First Nations in various stages of ratification from the
federal Government of Canada to satisfy outstanding Treaty Land Entitlement
claims. As part of the Treaty Land Entitlement settlements it is expected these
new First Nations will receive approximately 15 townships or 540 sections of
mineral rights for development inAlberta.
 
 In exchange for Kodiak advancing certain
contracted funds and making work program commitments, the Corporation will have
an exclusive opportunity to develop certain identified oil and gas properties
within the Peerless/Trout Lake First Nation and the Alberta Cree Nation. The
joint venture is based on a confidential letter of intent with a term sheet and
a head agreement for developing the relationship going forward. This arrangement
is designed to be the stepping stone for a larger scale oil and gas development
project.
 
 Kodiak will initially have the
opportunity to select up to approximately two townships (72 sections or 46,000
acres) of mineral rights from the combined Peerless/Trout Lake First Nations
identified lands and Alberta Cree Nation identified lands. The leases will be
for ten years, paid up with all rights. Kodiak will submit to CREEnergy a
development plan for the two selected townships with a goal to begin exploration
and development operations on or before November 1, 2009. CREEnergy and Kodiak
will discuss terms and conditions for the development of other townships of land
on or before May 1, 2010.
  40
 
 LittleChicago–Northwest
Territories
 
 The Company is the operator and largest
working interest owner of the 201,160 acre Exploration Licen s e 413 (“EL 413”)
in theMackenzie
RiverValleycentered along the planned Mackenzie
Valley Pipeline.
 
 In 2006, the Company signed an
exploration farm-in agreement with the two 50% working interest owners of EL
413.The company reprocessed 50 km of
existing seismic data in Q4 of 2006 and during the 2006-07 winter work season,
the Company shot and acquired 84 km of high resolution proprietary 2D seismic
and gravity survey data on the farm-out lands, thus earning a 12.5% working
interest in the property. In September, 2007, the Company acquired Thunder River
Energy, Inc.’s (“Thunder”) remaining 43.75% in the property giving the Company a
56.25% interest in EL 413. A letter of intent signed earlier in 2008 with the
Company’s remaining partner in the project, which would have allowed Kodiak to
acquire the balance of the working interest in EL 413 and become a 100% working
interest owner, recently expired.
 
 A 2007-08 43 km 2D high resolution
proprietary seismic program and gravity survey was completed on the property and
the results were processed and interpreted and used to support the Corporations
planned drilling program. This project was completed on budget and
schedule. The seismic and gravity data from the two projects show
substantial structural closure and formation character and support the planning
for a future multiple well drilling program. That data was included in an
updated Chapman Prospective Resource report published in May,
2008.
 
 The decision to acquire additional
seismic and gravity data in the winter of 2007-08 was made to improve the
potential to drill both the Devonian Bear Rock and the Basal Cambrian Sand
targets f rom a common drilling site. This would substantially lower drilling
costs on a per well basis and reduce the overall project
risk.
  Kodiak has analyzed
the 2007-08 seismic data and the various reservoir indicators/lands and
identified 11 drill locations . These drill locations have been selected to
evaluate three primary target formations on EL 413 including the Devonian Bear
Rock Oil Prospect, the Basal Cambrian Sand /Top Precambrian Oil and Gas Prospect
and the Canol Oil Prospect . These locations have been further high graded into
a two phase drilling program consisting of two wells with a planned total depth
of 2400 meters each targeting both the Basal Cambrian/Precambrian and the Bear
Rock prospects and a m ulti-well shallow drilling program with a planned total
depth of 400m each targeting the Canol prospect. A scouting trip was completed
in the third quarter of 2008 which allowed the Corporation to review potential
access routes, well sites and camp locations.
 
 The Devonian Bear Rock Prospect (“ Bear
Rock” ) is the first described target and is located at a shallow depth of
approximately 700 meters (2,300 ft.). This reservoir was previously identified
and preliminarily evaluated in the initial Chapman Report prepared in 2005. The
expected product from the reservoir is light and medium oil, with no
consideration to solution gas.
  41
 
 The combined seismic obtained during
2007 and 2008 acknowledged a series of pools distributed throughout the project.
The Chapman Report identified fifteen Bear Rock leads located along the seismic
lines with five of them being selected as well defined high grade Bear Rock
leads. This is an increase of 5 additional leads from the initial 2007 work
program. Indicators of these potentially prolific reservoirs are present along
several seismic lines that may imply these Bear Rock occurrences to be present
throughout EL 413.
  The additional 2008 seismic further
defined a hydrocarbon trap in the Basal Cambrian Sand sitting on the top of the
Precambrian. This interval, found at a depth of approximately 2,300 meters
(7,545 feet), has never been regionally penetrated and tested; however, it has
been proven as a productive reservoir in the Colville Hills area approximately
125 kilometers (77 miles) east of EL 413.  With this additional data,
the Chapman Report identified five drilling locations that will allow the Basal
Cambrian Sand and the top of the Precambrian to be drilled and
tested.
 
 Physical evidence of hydrocarbons is
present with a natural surface oil seep on the northern edge of the license area
on the banks of the Mackenzie River. This natural occurrence is suggestive of a
shallow oil pool, possibly in the Canol formation, and warrants further
investigation. While reviewing core samples and well logs from previous regional
drilling activity. Kodiak was able to map out the Canol/Imperial formation and
determine that it is the likely source of the natural surface seeps. This
prospect will be found on the Northwest quarter of EL 413 and is at a very
shallow depth of approximately 350 meters (1,148 feet). The Corporation has
identified 5 drilling locations which will be evaluated during a planned future
project drilling program.
 Kodiak is preparing for the previously
mentioned drilling program and has commenced work on the necessary permits and
applications. The Corporation is working with the Sahtu and the Gwich’in, which
are the beneficiaries of the land claims containing the EL 413 license. The
Corporation does not believe there will be any difficulty finishing the Access
and Benefits Agreement prior to submitting the final applications to the
regulators for approval. The Corporation is currently in discussions with other
industry partners to share in the costs of the drilling programs, thus reducing
risk and capital commitments. Financing plans will be finalized when overall
partnerships are established. Kodiak intends on retaining
operatorship.
 
 In addition, Kodiak hadmade application with regulators to
extend the EL 413 license and has received written notification from Indian and
Northern Affairs Canada that aoneyear extension is available. Theone yearlicense extension is subject to certain
terms and conditions.
  42
  Upon review of the overall status of all
projects in the area, current commodity prices being much below levels required
to justify development on this and other projects, continued delay of the
Mackenzie Valley Pipeline Project, the risk that any discovered gas reserves
would be indefinitely stranded without such development and the terms and
conditions of the license renewal, Kodiak hasdecided not to extendEL 413. We willstillretain the confidential proprietary
seismic data for future assessment ofthe"Little Chicago Prospect" andthe Company will
determinethe best way to
monetarize that asset through either divestitureand/orpossibly renominatingtheprospect when  conditions are
more appropriate.
 Province/Granlea
–Southeast
Alberta
 
 The Corporation purchased a 50% working
interest in two sections (1280 acres gross - 640 net) of P&NG rights at a
provincial land sale on September 22, 2005. In 2005, a 2D seismic program was
completed on the property and in 2006, a well was drilled and completed; surface
facilities were installed and a pipeline tie-in was completed. Production
commenced in September, 2006. The well produced for a short period until excess
water rates occurred and in October, 2006 the well was shut in. After the well
bore was evaluated as having n o current economic production potential, the well
was abandoned. An internal geological review of the prospect will be done to
determine if any further drilling is warranted.
 United States
 
 New
Mexico
 
 Through its acquisition of Thunder, the
Corporation acquired a 100% interest in 55,000 acres of property located in
northeastNew
Mexico. Additional land
acquisitions have increased the Corporation’s land position to approximately 79
,000 acres. These lands have potential for natural gas and CO2 and oil and
helium resources at shallow depths. In 2008, the Corporation purchased 19,000
stations of gravity data and 37 miles of trade seismic data, completed a 35 mile
2D high resolution proprietary seismic program and a three well drilling
program.
 
 The three wells were drilled with air to
reduce formation damage and they were cased to the base of the Yeso formation.
Based on gas detector results, drill cutting samples and open hole logs, all
wells showed three potential shallow porous sandstone formations capable of CO2
production with up to 200 feet of identified net pay thickness. The Yeso,
Glorieta andSanta
Rosaformations were
perforated and flow tested to determine deliverability and pressure. There were
multiple gas samples analyzed at specialized independent laboratories from two
separate extended flow tests that identified CO2 concentration quality from
98.4% to 99.5%. Two of the wells were stimulated with a nitrified acid squeeze
and were able to sustain an extended flow rate of approximately 375mcf/d. The
shallow sands have been mapped using offset well control and the newly acquired
seismic data and the Corporation has determined there is a very high likelihood
of encountering the target formations throughout the leased project area;
provided, however, that no assurance can be given that this will be the
case.
  43
 
 The 35 mile 2D high
resolution seismic program was completed on schedule and on budget and after
reviewing the seismic data, the Company was able to effectively map out a
probable long term development area which would result in CO2 production from
the previously identified formations. The seismic is currently being evaluated
to identify possible conventional oil and gas prospects on the leased project
area.
 
 A preliminary project feasibility study
was commissioned to identify capital development costs and timelines as well as
projected operating costs in order to provide information to support a large
scale long-term plan of development.  This information will enable the
definitions for pipeline access planning and negotiation, transportation
agreements, sales contracts for the CO2, additional land acquisition terms and
conditions, facility engineering and construction and ultimately the parameters
for financing the project development.
 
 Several companies have expressed
interest in participating in theNew Mexicoproperties at several levels of
involvement.  Discussions are ongoing with several firms regarding
potential opportunities for the project, including integration of the CO2
production intoPermianBasinenhanced oil recovery
projectsand the Company
has also entered into farmout negotiations with several companies interested in
exploring deeper oil and natural gas prospects on the properties.
 
 Montana
 
 During 2006, the Company, under a joint
venture farmout agreement, participated in a seismic acquisition program and a
two well drilling program to earn a 50% non-operating working interest in the
wells and well spacing. This joint venture project provides the company with the
right to participate on a 50% basis going forward on this prospect in theHillCountyarea ofMontana. The Operator of the project had 60,000
contiguous undeveloped acres of P&NG rights in the area, as well as some
excess capacity in facilities and pipelines. Two wells were drilled in the third
quarter of 2006; one is cased for subsequent evaluation of the multiple zones
found and one was abandoned. In order to facilitate the efficient exploration of
this prospect area, the company has acquired from the original operator a 100%
working interest of 12,000 acres of P&NG rights while retaining the right to
participate and initiate operations on the remaining approximate 48,000 acres of
prospect leases. After an internal geological review of this prospect, and in
light of current commodity prices, the Company, in the fourth quarter of 2008,
wrote off itscosts
relative to this project
andsubsequently, in 2009,
the Company has allowed the acreage to expire.
 
 Financial
Condition and Changes in Financial Condition
 (All dollar values are expressed inUnited Statesdollars unless otherwise
stated)
 
 The Company’s ability to raise funds has
been severely impacted by the global collapse of credit and equity markets.
However, the Company is confident that it will be able to obtain financing that
will enable it to regain momentum in furthering its exploration and development
plans for thebalanceof 2009and for 2010.
  44
 
 The Company’s total
assets of $25,309,270as atJune 30, 2009represent a significant reduction of
$11,325,662 from
$36,634,932 as at December 31, 2008. This reduction is mainly comprised of
a $16,036,000 impairment allowance recorded in the second quarter of 2009 in
connection with the Company's Little Chicago Exploration License 413 in N.W.T,Canadaoffset by capital asset additions of
$728,000 and a foreign currency translation gain of $3,976,000 related to its
net Canadian assets. Our total assets consist of cash and other
current assets of $243,311(December 31, 2008 - $245,562);
unproved oil and gas properties and equipment of $25,309,270(December 31, 2008 - $36,634,932); and
other assets of $305,196(December 31, 2008 - $290,903).It is estimated by management that unproved property costs aggregating
approximately $15,000,000 as at June 30, 2009, will be included in costs subject
to depletion by 2011. Our total
current liabilities were $2,097,313(December 31, 2008 - $1,140,273) and
consisted of accounts payable and accrued liabilities relating to general and
administrative costs and capital expenditures incurredand $472,890 in advances received from
European investment fund in anticipation of financing and asset disposition
transactions. We had long
term liabilities of $41,136(December 31, 2008 - $39,262) and asset
retirement obligations of $209,095(December 31, 2008 - $199,574).
Shareholders’ equity amounted to $23,510,233(December 31, 2008 - $35,792,288), net
of an accumulated deficit of $25,590,176(December 31, 2008 - $8,710,088) and
other comprehensive loss consisting mainly of foreign currency translation
losses of $970,804(December 31, 2008 - $4,903,762), and
minority interest equity of $400,497(December 31, 2008 - $ nil) relating to
the 6.4% interest held by minority shareholders
in Cougar.
 
 Overall
Operating Results
 
 In thesixmonths endedJune30, 2009,the Company had no income(2008 - $46)and operating costs of $2,172(2008 - $5,273) relating to its Granlea, Alberta
property which well watered out in late 2006 and was deemed uneconomic. Except
for thatincidentalproduction, the Company
remains in the exploratory and development stage.
 
 Net Loss for thesixmonths endedJune30, 2009 totalled $16,880,088(2008 - $90,344as restated).In addition to the operating results
noted above, these losses consist of general and administrative expenses of
$849,889(2008 - $1,070,083), including stock-based compensation
expense amounting to $294,719(2008 - $355,605); depletion, depreciation and accretion
of $16,042,324(2008 - $25,277)including a $16,035,774 allowance for
impairment in connection with the Company's canadian unproved properties cost
centerand interest of
$304(2008 $1,257).
 
 General and administrative expenses
include the cost of employed and consulting personnel and others who provided
investor relations services, public company costs for SEC reporting compliance,
accounting, audit and legal fees and other general and administrative office
expenses. General and administrative expense also includes stock-based
compensation relating to the cost of stock options granted to directors,
officers, employees and other personnel. General and administrative costs are
being minimized during periods of low activity butareexpected to increase in the future as
the scope of the company’s activities increases.
   45
 
 Depletion, depreciation and accretion
includes the cost of depreciation relating to office furniture and
equipment in thesixmonths endedJune 30, 2009 and 2008.The 2009 amount includes a $16,035,774
allowance for impairment in connection with the Company'sLittle Chicago Exploration License 413
in N.W.T,Canada. Other unproved property costs as at
June 30, 2009 of $25,241,187 (December 31, 2008 - $36,559,367) have been excluded from depletable cost
pools for ceiling test purposes.See note 7 to the consolidated financial
statements.
 
 Interest income of $923in thesixmonths endedJune30, 2009(2008 - $61,500)wasearned. The 2008 interest wasderived from the investment
of excess cash balances on a short-term basis. Deferred income tax recovery of
$950,000 in the 2008 period represents a
deferred tax credit arising from the expenditure of funds duringthat yearrelating to the premium received on the
issue of Canadian flow-through shares in 2007. The Minority interest credit of
$15,842represents the Cougar minority
shareholders’ share of the net loss for the 2009periodduring the portion of theyearthat the minority interestsshareholdings wereoutstanding(6.4% as at June 30, 2009).
 
 Capital
Expenditures:
 
 Capital Expenditures incurred by the
Company during thesixmonths endedJune30, 2009 and 2008 are set out
below.
  2009
                            
                            
                            2008Land acquisition and carrying
      costs
                            
                            $
                            698,176
                            
                            
                            $
                            1,172,250Geological and
      geophysical
                            
                            
                            83
                            
                            
                            
                            4,552,835Intangible drilling and
      completion
                            
                            
                            7,358
                            
                            
                            
                            3,696,595Tangible completion and
      facilities
                            
                            
                            1,036
                            
                            
                            
                            115,495Total Capital Costs
      Incurred
                            
                            $
                            733,383
                            
                            
                            $
                            9,537,175
  Land acquisition and carrying costs for
the 2009periodinclude exclusivity rights payments in
connection with our Cree Energy agreement and other land retention costs while
the 2008periodcosts includeNew Mexicoland acquisitions and other land
retention costs.
 
 Geological and geophysical costs include
the costs of the seismic programs carried out on the EL 413 Little Chicago,
North West Territory andNew Mexicoprojects in 2008.
  British Columbia and 100% of the three well New Mexico program.
  46
  Liquidity
and Capital Resources:
 
 Since inception toJune 30, 2009, the company’s operations have
been financed from the sale of securities and loans from shareholders. The
working capital deficiency atJune 30,2009 amounted to $1,854,002(December 31, 2008 - $894,711). The
Company is currently in theprocess of finalizing transactions with
a Eoropean investment fund thatwill, when closed, provide sufficient
funds to enable the Company to cover this working capital deficiency and fund
additional 2009 activities.The Company is also in the final stages of completing a purchase and sale
agreement for cash and debt in its Cougar subsidiary, which, when closed, will
result in a significant Canadian property acquisition including production,
proved reserves and cash flow. See Subsequent Events note 21 to the consolidated
financial statements.
 
 The Corporation currently has no long
term debt obligations.
 
 The Company is seeking and is confident
it will obtain additional financing, either through debt, equity or a
combination thereof to cover the estimated cost of its planned programs for the
balance of 2009 and into 2010. In addition, we may require funds for additional
acquisitions. In the event that additional capital is raised at some time in the
future, existing shareholders will experience dilution of their interest in the
Corporation.
 
 There is uncertainty that the Company
will continue as a going concern, which presumes the realization of assets and
discharge of liabilities in the normal course of business for the foreseeable
future. The Company has not generated positive cash flow from
operations since inception and has incurred operating losses and will need
additional working capital for its future planned activities. These conditions
raise doubt about the Company’s ability to continue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining
sufficient working capital to finance ongoing operations. The Company’s strategy
to address this uncertainty, includes additional equity and debt financing;
however, there are no assurances that any such financings can be obtained on
favorable terms, if at all. These consolidated financial statements do not
reflect the adjustments or reclassification of assets and liabilities that would
be necessary if the Company were unable to continue its operations.
   ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  The
Company is exposed to market risk from changes in petroleum and natural gas and
related hydrocarbon prices, foreign currency exchange rates and interest
rates.
  47
  Petroleum
and Natural gas and Related Hydrocarbon Prices
  The
Company currently has no petroleum and natural gas and related hydrocarbon
reserves or production so the Company therefore has no current exposure related
to the instability of prices of such commodities. However; the prices of these
commodities are unstable and are subject to fluctuation, due to factors outside
of the Company’s control, including war, weather, the availability of alternate
fuel and transportation interruption and any material decline in these commodity
prices could have an adverse impact on the economic viability of the Company’s
exploration projects.
  Foreign
Currency Exchange Rates
  The
Company, operating in both the United States and Canada, faces exposure to
adverse movements in foreign currency exchange rates. These exposures may change
over time as business practices evolve and could materially impact the Company’s
financial results in the future. To the extent revenues and expenditures
denominated in other currencies vary from their U. S. dollar equivalents, the
Company is exposed to exchange rate risk. The Company can also be exposed to the
extent revenues in one currency do not equal expenditures in the same currency.
The Company is not currently using exchange rate derivatives to manage exchange
rate risks.
  Interest
Rates
  The
Company’s interest income and interest expense, in part, is sensitive to the
general level of interest rates in North America. The Company is not currently
using interest rate derivatives to manage interest rate risks.
  
 ITEM 4.
CONTROLS AND PROCEDURES
  Evaluation of Disclosure Controls and
Procedures
  Our Chief Executive Officer and Chief
Financial Officer have evaluated the effectiveness of our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) as of
the end of the period covered by this report. They concluded that, as of the end
of the period covered by this report, our disclosure controls and proceduresare designed , and are
effective, to give reasonable assurance that the information required to be
disclosed by the Company in reports that it files under the Exchange Act is
recorded , processed, summarized and reported within the time periods specified
in the rules and forms of the SEC and also effective to ensure that information
required to be disclosed in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, to allow timely decisions
regarding required disclosure. They also concluded that, as of the end of the
period covered by this report, our disclosure controls and procedureswere adequate and effective
in ensuring that material information relating to the Company would be made
known to them by others within those entities, particularly during the period in
which this report was being prepared.Management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and in
reaching a reasonable level of assurance, management necessarily is required to
apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Our management believes that our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving their objectives and our principal executive officer and principal
financial officer have concluded that our disclosure controls and procedures are
effective at that reasonable assurance level. As noted below, the Company
continues to have a material weakness in internal control over financial
reporting but believes that such weakness does not extend to our disclosure
controls and procedures.
  48
 
 2007
Restatement
 
 During the process of preparing the
Company’s Annual Report on Form 10-K for the Fiscal Year Ended December 31,
2008, it was determined that it may be necessary to restate our consolidated
financial statements for the Fiscal Quarter Ended September 30, 2007 and the
Fiscal Year Ended December 31, 2007. The restatements would be required to
correct for an error in measurement and an error in the application of U.S.
generally accepted accounting principles (“US GAAP”) in recording two September,
2007 transactions as described in Note 2 to our unaudited consolidated financial
statements.
  After discussing these matters with
other management, the CFO recommended to the Audit Committee that previously
reported financial results be restated to reflect correction of these errors.
The Audit Committee agreed with this recommendation. Pursuant to the
recommendation of the Audit Committee, the Board of Directors determined at its
meeting on March 13, 2009, that previously reported results for the Company be
restated. On March 27, 2009, amended consolidated financial statements for the
above noted periods were filed.
 
 Both of these errors resulted from the
Company not seeking appropriate external advice regarding the accounting of
certain transactions that were complex and not subject to routine accounting
principles. One error was in measuring the appropriate date at which common
shares of the Company were issued in consideration for the acquisition of
unproved oil and gas properties, an arm’s length transaction that was negotiated
over a period of several months during 2007 but not finally closed until
September 28, 2007, at which date the common shares were issued. The second
error was in the application of US GAAP in the accounting for the complexities
involved relating to premium proceeds received on the issue of Canadian
flow-through shares, a Canadian income tax concept not in practice in theUnited States. These errors demonstrated a material
weakness relating to the segregation of duties among financial and accounting
personnel and a need to engage additional personnel or seek outside advice where
appropriate to strengthen internal control over financial
reporting.
 
 Remediation of Weakness in Internal
Control Over Financial Reporting
 
 The Company will endeavor to engage
outside consulting assistance to ensure the proper accounting for non-routine
accounting transactions and compliance with US GAAP. Beginning in 2008, the
Companyhasengaged an outside consulting firm to
assist in income tax planning and compliance and beginning with our fiscal year
ended December 31, 2008, to review our Canadian andU.S.income tax provisions.
 
 As atJune 30, 2009 and December 31, 2008, the
Company continues to have a material weakness in internal control over financial
reporting, relating to the segregation of duties among certain personnel.
Management believes that without engaging additional personnel, estimated to
cost a minimum of approximately $150,000 per annum, we cannot remedy such
material weakness. Management believes such expenditures cannot be justified at
this time when the Company is still in the exploratory stage of operations and
has no proved reserves, production or cash flow. When sufficient cash flow is
being generated, management will review its position. Management believes its
controls and procedures related to its financial and corporate information
systems are appropriate for a company of its size and mandate and due to its
internal expertise, it is not dependent upon the inherent risks in external
third party management of such systems.
  49
 
 PART II -
OTHER INFORMATION
 
 ITEM 1.
LEGAL PROCEEDINGS
  The
Company is not presently a party to any litigation.
  
 ITEM 1A.
RISK FACTORS
  Going Concern
Uncertainty
  There is
uncertainty that the Company will continue as a going concern, which presumes
the realization of assets and discharge of liabilities in the normal course of
business for the foreseeable future. The Company has not generated positive cash
flow since inception and has incurred operating losses and will need additional
working capital for its future planned activities. These conditions raise doubt
about the Company’s ability to continue as a going concern. Continuation of the
Company as a going concern is dependent upon obtaining sufficient working
capital to finance ongoing operations. The Company’s strategy to address this
uncertainty, includes additional equity and debt financing; however, there are
no assurances that any such financings can be obtained on favorable terms, if at
all, or that the Company will generate positive cash flow. These financial
statements do not reflect the adjustments or reclassification of assets and
liabilities that would be necessary if the Company were unable to continue its
operations.
  Financial
Markets Instability and Uncertainty
 
 The 2008-09 worldwide financial and
credit crisis has reduced the availability of capital and credit to fund the
continuation and expansion of industrial business operations worldwide. The
shortage of capital and credit combined with recent substantial losses in
worldwide equity markets has led to an extended worldwide economic recession.
The slowdown in economic activity caused by this recession is reducing worldwide
demand for energy and resulting in lower oil and natural gas and other commodity
prices. A prolonged reduction in oil and natural gas prices will depress the
immediate levels of exploration, development and production activity. That is
impacting negatively on our Company’s ability to raise capital to finance our
ongoing capital projects. The Company may be required to consider divestiture of
some properties or working interests to raise funds. Until the financial market
conditions improve, we will face significant challenges in meeting our ongoing
financial obligations. This global financial crisis may have impacts on our
business and financial condition that we currently cannot
predict.
  50
 
 The Oil and Gas Industry Is
Highly Competitive
  The oil
& gas industry is highly competitive. We compete with oil and natural gas
companies and other individual producers and operators, many of which have
longer operating histories and substantially greater financial and other
resources than we do. We compete with companies in other industries supplying
energy, fuel and other needs to consumers. Many of these companies not only
explore for and produce crude oil and natural gas, but also carry on refining
operations and market petroleum and other products on a worldwide basis. Our
larger competitors, by reason of their size and relative financial strength, can
more easily access capital markets than we can and may enjoy a competitive
advantage in the recruitment of qualified personnel. They may be able to absorb
the burden of any changes in laws and regulation in the jurisdictions in which
we do business and handle longer periods of reduced prices of gas and oil more
easily than we can. Our competitors may be able to pay more for productive oil
and natural gas properties and may be able to define, evaluate, bid for and
purchase a greater number of properties and prospects than we can. Our ability
to acquire additional properties in the future will depend upon our ability to
conduct efficient operations, evaluate and select suitable properties, implement
advanced technologies and consummate transactions in a highly competitive
environment.
  Government and Environmental
Regulation
  Our
business is governed by numerous laws and regulations at various levels of
government. These laws and regulations govern the operation and maintenance of
our facilities, the discharge of materials into the environment and other
environmental protection issues. The laws and regulations may, among other
potential consequences, require that we acquire permits before commencing
drilling, restrict the substances that can be released into the environment with
drilling and production activities, limit or prohibit drilling activities on
protected areas such as wetlands or wilderness areas, require that reclamation
measures be taken to prevent pollution from former operations, require remedial
measures to mitigate pollution from former operations, such as plugging
abandoned wells and remediation of contaminated soil and groundwater, and
require remedial measures to be taken with respect to property designated as a
contaminated site.
  Under
these laws and regulations, we could be liable for personal injury, clean-up
costs and other environmental and property damages, as well as administrative,
civil and criminal penalties. We maintain limited insurance coverage for sudden
and accidental environmental damages as well as environmental damage that occurs
over time. However, we do not believe that insurance coverage for the full
potential liability of environmental damages is available at a reasonable cost.
Accordingly, we could be liable, or could be required to cease production on
properties, if environmental damage occurs.
  The costs
of complying with environmental laws and regulations in the future may harm our
business. Furthermore, future changes in environmental laws and regulations
could occur that may result in stricter standards and enforcement, larger fines
and liability, and increased capital expenditures and operating costs, any of
which could have a material adverse effect on our financial condition or results
of operations.
   51
 
 The Successful
Implementation Of Our Business Plan Is Subject To Risks Inherent In The Oil
& Gas Business.
 Our oil
and gas operations are subject to the economic risks typically associated with
exploration, development and production activities, including the necessity of
significant expenditures to locate and acquire properties and to drill
exploratory wells. In addition, the cost and timing of drilling, completing and
operating wells is often uncertain. In conducting exploration and development
activities, the presence of unanticipated pressure or irregularities in
formations, miscalculations or accidents may cause our exploration, development
and production activities to be unsuccessful. This could result in a total loss
of our investment in a particular property. If exploration efforts are
unsuccessful in establishing proved reserves and exploration activities cease,
the amounts accumulated as unproved costs will be charged against earnings as
impairments.
  We Expect Our Operating
Expenses To Increase Substantially In The Future And May Need To Raise
Additional Funds.
  We have a
history of net losses and expect that our operating expenses will continue to
increase over the next 12 months as we continue to implement our business plan.
In addition, we may experience a material decrease in liquidity due to
unforeseen expenses or other events and uncertainties. As a result, we may need
to raise additional funds, and such funds may not be available on favorable
terms, if at all. If we cannot raise funds on acceptable terms, we may not be
able to execute on our business plan, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements. This may
seriously harm our business, financial condition and results of
operations.
  We Are An Exploration Stage
Company Implementing A New Business Plan.
  We are an
exploration stage company with only a limited operating history upon which to
base an evaluation of our current business and future prospects, and we have
just begun to implement our business plan. Since our inception, we have suffered
recurring losses from operations and have been dependent on new investment to
sustain our operations. During the six months ended June 30, 2009 and the years
ended December 31, 2008, 2007, 2006 and 2005, we reported losses of $16,880,088,
$2,074,649, $2,571,663 (Restated), $2,867,374 and $1,133,790 respectively. In
addition, our consolidated financial statements for the six months ended June
30, 2009 and the years ended December 31, 2008, 2007, 2006 and 2005 contained a
going concern qualification and we cannot give any assurances that we can
achieve profits from operations.
  Our Ability To Produce
Sufficient Quantities Of Oil & Gas From Our Properties May Be Adversely
Affected By A Number Of Factors Outside Of Our Control.
  The
business of exploring for and producing oil and gas involves a substantial risk
of investment loss. Drilling oil wells involves the risk that the wells may be
unproductive or that, although productive, that the wells may not produce oil or
gas in economic quantities. Other hazards, such as unusual or unexpected
geological formations, pressures, fires, blowouts, loss of circulation of
drilling fluids or other conditions may substantially delay or prevent
completion of any well. Adverse weather conditions can also hinder drilling
operations. A productive well may become uneconomic due to pressure depletion,
water encroachment, mechanical difficulties, etc, which impair or prevent the
production of oil and/or gas from the well.
  52
  There can
be no assurance that oil and gas will be produced from the properties in which
we have interests. In addition, the marketability of any oil and gas that we
acquire or discover may be influenced by numerous factors beyond our control.
These factors include the proximity and capacity of oil and gas pipelines and
processing equipment, market fluctuations of prices, taxes, royalties, land
tenure, allowable production and environmental protection. We cannot predict how
these factors may affect our business.
 
 In
addition, the success of our business is dependent upon the efforts of various
third parties that we do not control. We rely upon various companies to assist
us in identifying desirable oil and gas prospects to acquire and to provide us
with technical assistance and services. We also rely upon the services of
geologists, geophysicists, chemists, engineers and other scientists to explore
and analyze oil prospects to determine a method in which the oil prospects may
be developed in a cost-effective manner. In addition, we rely upon the owners
and operators of oil drilling equipment to drill and develop our prospects to
production. Although we have developed relationships with a number of
third-party service providers, we cannot assure that we will be able to continue
to rely on such persons. If any of these relationships with third-party service
providers are terminated or are unavailable on commercially acceptable terms, we
may not be able to execute our business plan.
  Market Fluctuations In The
Prices Of Oil And Gas Could Adversely Affect Our Business.
  Prices
for oil and natural gas tend to fluctuate significantly in response to factors
beyond our control. These factors include, but are not limited to actions of the
Organization of Petroleum Exporting Countries and its maintenance of production
constraints, the U.S. economic environment, weather conditions, the availability
of alternate fuel sources, transportation interruption, the impact of drilling
levels on crude oil and natural gas supply, and the environmental and access
issues such as changes in government regulation that could limit or expand
future drilling activities for the industry.
  Changes
in commodity prices may significantly affect our capital resources, liquidity
and expected operating results. Price changes directly affect revenues and can
indirectly impact expected production by changing the amount of funds available
to reinvest in exploration and development activities. Reductions in oil and gas
prices not only reduce revenues and profits, but could also reduce the
quantities of reserves that are commercially recoverable. Significant declines
in prices could result in charges to earnings due to impairment.
  Changes
in commodity prices may also significantly affect our ability to estimate the
value of producing properties for acquisition and divestiture and often cause
disruption in the market for oil producing properties, as buyers and sellers
have difficulty agreeing on the value of the properties. Price volatility also
makes it difficult to budget for and project the return on acquisitions and
development and exploitation of projects. We expect that commodity prices will
continue to fluctuate significantly in the future.
  53
 
 Risks Of Penny Stock
Investing
  The
Company's common stock is considered to be a "penny stock" because it meets one
or more of the definitions in the Exchange Act Rule 3a51-1, a Rule made
effective on July 15, 1992. These include but are not limited to the
following:(i) the stock trades at a price less than five dollars ($5.00) per
share; (ii) it is NOT traded on a "recognized" national exchange; (iii) it is
NOT quoted on an automated quotation system sponsored by a national securities
association (NASDAQ), or even if so, has a price less than five dollars ($5.00)
per share; OR (iv) is issued by a company with net tangible assets less than
$2,000,000, if in business more than three years continuously, or $5,000,000, if
in business less than a continuous three years, or with average revenues of less
than $6,000,000 for the past three years. The principal result or effect of
being designated a "penny stock" is that securities broker-dealers cannot
recommend the stock but must trade in it on an unsolicited basis.
  Risks Related To
Broker-Dealer Requirements Involving Penny Stocks / Risks Affecting Trading And
Liquidity
  Section
15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated there under by the Commission require broker-dealers dealing in
penny stocks to provide potential investors with a document disclosing the risks
of penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account. These rules may have the effect of reducing the level of trading
activity in the secondary market, if and when one develops.
  Potential
investors in the Company's common stock are urged to obtain and read such
disclosure carefully before purchasing any shares that are deemed to be "penny
stock." Moreover, Commission Rule 15g-9 requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Pursuant to the
Penny Stock Reform Act of 1990, broker-dealers are further obligated to provide
customers with monthly account statements. Compliance with the foregoing
requirements may make it more difficult for investors in the Company's stock to
resell their shares to third parties or to otherwise dispose of them in the
market or otherwise.
  54
 
 ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  None
 
  ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
  None.
 
 
 Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  None.
  
 Item 5.
OTHER INFORMATION
  None.
   ITEM 6. EXHIBITS
  EXHIBITS
  31.1
- Certification of President and Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
  31.2
- Certification of Chief Financial Officer to Section 302 of the Sarbane-Oxley
Act of 2002
  32.1
- Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 KODIAK
      ENERGY, INC.(Registrant)Dated:
      August 10, 2009
                
                By: /s/  William S.
      TigheWilliam
      S. TigheChief
      Executive Officer
   55